<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NO. 333-76007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLIAMS COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 73-1462856
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM G. VON GLAHN, ESQ.
SENIOR VICE PRESIDENT, LAW
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RANDALL H. DOUD, ESQ. MARLENE ALVA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP DAVIS POLK & WARDWELL
919 THIRD AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 735-3000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share(3).................. $750,000,000 $208,500
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 promulgated under the Securities Act
of 1933.
(2) Previously paid.
(3) This registration statement also pertains to Rights to purchase Series A
Participating Preferred Stock of the registrant. Until the occurrence of
certain prescribed events the Rights are not exercisable, are evidenced by
the certificates for the Common Stock and will be transferred along with and
only with such securities. Thereafter, separate Rights certificates will be
issued representing one Right for each share of Common Stock held subject to
adjustment pursuant to anti-dilution provisions.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT SPECIFICALLY STATING THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus, one to be
used in connection with an offering in the United States and Canada and one to
be used in a concurrent international offering outside the United States and
Canada. The U.S. prospectus and the international prospectus will be identical
in all respects except for the front cover page and back cover page. The front
cover page and back cover page for the international prospectus included in this
registration statement are each labelled "Alternate International Page." The
form of U.S. prospectus is included in this registration statement and the form
of the front and back cover pages of the international prospectus follow the
U.S. prospectus.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
[WILLIAMS LOGO]
SHARES
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
------------------
We are selling ____________ shares of our common stock. The underwriters
named in this prospectus may purchase up to ____________ additional shares of
our common stock from us under certain circumstances.
This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $________ and $________ per
share, and we have applied to have our common stock listed on the New York Stock
Exchange under the symbol "WCG."
We are a subsidiary of The Williams Companies, Inc. and following this
offering The Williams Companies, Inc. will continue to hold a controlling
interest in our stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Williams Communications Group,
Inc. ..................................................... $ $
</TABLE>
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager
SALOMON SMITH BARNEY LEHMAN BROTHERS MERRILL LYNCH & CO.
Structural
Advisor
</TABLE>
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 9
This Prospectus Contains Forward-
Looking Statements............... 21
Use of Proceeds.................... 22
Dividend Policy.................... 22
Capitalization..................... 23
Dilution........................... 24
Selected Consolidated Financial and
Operating Data................... 25
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 31
Industry Overview.................. 56
Business........................... 63
Regulation......................... 95
Management......................... 103
Principal Stockholders............. 119
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Relationships and Related Party
Transactions..................... 123
Relationship Between Our Company
and Williams..................... 125
Description of Capital Stock....... 132
Description of Indebtedness and
Other Financing Arrangements..... 142
Shares Eligible for Future Sale.... 147
Important United States Federal Tax
Consequences of Our Common Stock
to Non-U.S. Holders.............. 149
Underwriting....................... 152
Legal Matters...................... 156
Experts............................ 157
Where You Can Find Additional
Information...................... 157
Index to Financial Statements...... F-1
</TABLE>
Until __________, 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE> 5
PROSPECTUS SUMMARY
This is only a summary and does not contain all of the information that may
be important to you. You should read the entire prospectus, including the
section entitled "Risk Factors" and our consolidated financial statements and
related notes, before deciding to invest in our common stock.
Unless otherwise indicated, or the context otherwise requires, all
information in this prospectus assumes that the underwriters do not exercise
their over-allotment option.
WILLIAMS COMMUNICATIONS GROUP, INC.
We own, operate and are extending a nationwide fiber optic network focused
on providing voice, data, Internet and video services to communications service
providers. We also sell, install and maintain communications equipment and
network services that address the comprehensive voice and data needs of
organizations of all sizes. Our three business units are our network unit, our
communications equipment solutions unit, and our strategic investments unit. We
also enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams network and to
enhance our service offerings.
For the three months ended March 31, 1999, the percentage of revenue
attributable to each unit was 21.6% for our network unit, 67.2% for our
solutions unit and 13.6% for our strategic investments unit. As a result of our
focus on the development and expansion of the Williams network, we expect a
significant change in our revenue mix over the next few years. Throughout 1999
and 2000, we expect our network unit to contribute an increasing percentage of
our total revenues and by 2001 we expect our network unit to contribute the
largest percentage of our total revenues and to be the primary source of our
revenue.
Prior to the initial public offering of our common stock, our company was a
wholly-owned subsidiary of The Williams Companies, Inc., which first entered the
communications business in 1985 by pioneering the placement of fiber optic
cables in pipelines that were no longer in use.
This prospectus contains the trademark of Williams which is the property of
Williams and is licensed to us.
Our principal executive offices are located at One Williams Center, Tulsa,
Oklahoma 74172 and our telephone number is (918) 573-2000.
OUR BUSINESS UNITS
OUR NETWORK UNIT
Our network unit offers voice, data, Internet and video services, as well
as rights of use in dark fiber, on our low-cost, high-capacity nationwide
network. Dark fiber is fiber optic cable that we install but for which we do not
provide communications transmission services. We focus on providing
communications services to other communications companies as they seek to
benefit from the growth in communications demand. The Williams network currently
consists of approximately 21,400 miles of installed fiber optic cable, of which
18,770 miles are in operation, or lit. We plan to extend the Williams network,
utilizing pipeline and other rights of way, to connect 125 cities by the end of
the year 2000. Rights of way are rights to install fiber along routes owned by
other parties. We expect that by the end of 2000 the Williams network's total
route miles, or actual miles of the path over which fiber optic cable is
installed, will encompass a total of over 33,000 route miles of fiber optic
cable.
The Williams network transports information as "packets," which are data
organized for transmission over circuits shared simultaneously by several users.
Newly developed equipment
1
<PAGE> 6
enables networks using this packet technology to carry voice, video and data
more efficiently and at a lower cost than traditional telephone networks. The
technology we use is known as asynchronous transfer mode, or ATM.
OUR NETWORK UNIT'S STRATEGY
Our network unit's objective is to become the leading nationwide provider
of voice, data, Internet and video services to national and international
communications providers. To achieve this objective, we intend to:
- become the leading provider to communications carriers
- deploy a technologically advanced network
- pursue strategic alliances
- leverage network construction, operation and management experience
- utilize pipeline rights of way
- establish international communications capacity
- establish ourselves as a low-cost provider
OUR SOLUTIONS UNIT
Our solutions unit distributes and integrates communications equipment from
leading vendors for the voice and data communications needs of businesses of all
sizes as well as for governmental, educational and non-profit institutions. Our
solutions unit provides planning, design, implementation, management,
maintenance and optimization services for the full life cycle of the equipment.
We also sell the communications services of select network customers and other
carriers to our solutions unit's customers. Our solutions unit's broad range of
voice and data products and services allows us to serve as a single-source
provider of solutions for our customers' communications needs. We serve an
installed base of approximately 100,000 customer sites in the U.S. and Canada
and maintain a sales organization consisting of approximately 1,200 sales
personnel and 110 sales and service offices.
OUR SOLUTIONS UNIT'S STRATEGY
Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:
- capitalize on converging voice, data, Internet and video needs
- leverage our engineering and technical resources
- provide advanced professional services
- utilize our nationwide presence and large, installed customer base
- extend the reach of our network's carrier customers
OUR STRATEGIC INVESTMENTS UNIT
Through our strategic investments unit, we make investments in, or own and
operate, domestic and foreign businesses that create demand for capacity on the
Williams network, increase our service capabilities, strengthen our customer
relationships, develop our expertise in advanced transmission electronics or
extend our reach. Our domestic strategic investments include our ownership of
Vyvx, a leading video transmission service for major broadcasters and
advertisers, and minority interests in Concentric Network Corporation, UniDial
Communications, Inc. and UtiliCom Networks Inc. Our international strategic
investments include ownership interests in communications companies located in
Brazil, Australia and Chile.
2
<PAGE> 7
CONCURRENT INVESTMENTS IN OUR COMMON STOCK
- SBC. On February 8, 1999, we entered into agreements with SBC
Communications Inc. under which SBC will invest $500 million in our
company. We and SBC will sell each other's products and we and SBC will
purchase each other's services on a preferred provider basis.
- Intel. On May 24, 1999, we entered into an agreement with Intel
Corporation under which Intel will invest $200 million in our company. We
and Intel Internet Data Services will purchase each other's services.
- Telefonos de Mexico. On May 25, 1999, we entered into an agreement with
Telefonos de Mexico under which Telefonos de Mexico will invest $25
million in our company, which may be increased to $100 million if SBC
agrees to reduce its investment. We and Telefonos de Mexico will sell
each other's products and provide services to each other for 20 years.
Each of the concurrent investments by SBC, Intel and Telefonos de Mexico in
our common stock will be at the initial public offering price less the
underwriting discount.
The consummation of the SBC investment, the equity offering and the notes
offering referred to below will occur simultaneously and are each contingent
upon each other. The Intel and Telefonos de Mexico investments are expected to
occur within a few days following the consummation of the offerings and the SBC
investment. For more information about the concurrent investments, see the
section of this prospectus entitled "Business -- Strategic alliances."
CONCURRENT NOTES OFFERING
Concurrent with the equity offering, we are offering approximately $1.3
billion aggregate principal amount of ____% senior notes due 200_ by means of a
separate prospectus.
For more information about the notes offering, see the section of this
prospectus entitled "Description of Indebtedness and Other Financing
Arrangements -- Notes."
3
<PAGE> 8
THE EQUITY OFFERING
Common stock offered in the
equity offering........... ______ shares
Common stock sold in the
concurrent investments.... ______ shares
Subtotal................. ______ shares
Class B common stock owned
by Williams.............. ______ shares
Total capital stock to be
outstanding after the
equity offering and the
concurrent
investments............ 450,000,000 shares
Use of proceeds............... We estimate that the net proceeds from the
equity offering will be approximately $606.7
million. We estimate that the net proceeds from
the notes offering will be approximately $1.27
billion and the net proceeds from the
concurrent investments will be approximately
$725 million. We intend to use these net
proceeds to develop and light the Williams
network, fund operating losses, repay portions
of our debt and for working capital and general
corporate purposes. See the section "Use of
Proceeds" for more information.
Voting rights:
Common stock................ One vote per share
Class B common stock........ Ten votes per share
Other common stock
provisions.................... Apart from the different voting rights, the
holders of common stock and Class B common
stock generally have identical rights. See the
section "Description of Capital Stock" for more
information.
Proposed NYSE symbol.......... "WCG"
Dividend policy............... We do not intend to pay cash dividends on our
common stock in the foreseeable future. See the
section "Dividend Policy" for more information.
The number of shares of common stock to be outstanding immediately after
the equity offering and the concurrent investments does not take into account
the issuance of up to ______ shares of common stock which the underwriters have
the option to purchase solely to cover over-allotments, if any, or the issuance
of shares of common stock pursuant to deferred or restricted share awards or
option grants under our company's stock-based plans for directors, officers and
other employees. See the section "Management -- New stock-based and incentive
plans of our company" for more information. The indicated number of shares of
common stock sold in the concurrent investments is based on an assumed initial
public offering price of $____ per share, the midpoint of the price range on the
cover page of this prospectus.
RISK FACTORS
You should consider carefully the risks of an investment in our common
stock. See the section of this prospectus entitled "Risk Factors" for more
information.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial and operating
data derived from our consolidated financial statements. You should read this
along with the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our consolidated
financial statements and related notes and information related to EBITDA below.
In January 1995, Williams sold its network business to LDDS Communications,
Inc. (now MCI WorldCom, Inc.) for approximately $2.5 billion. The sale included
Williams' nationwide fiber optic network and the associated consumer, business
and carrier customers. Williams excluded from the sale an approximately 9,700
route-mile single fiber optic strand on its original nationwide network, its
telecommunications equipment distribution business and Vyvx. The single fiber,
along with Vyvx, our solutions unit and a number of acquired companies, formed
the basis for what is today our company. See Note 2 to our consolidated
financial statements for a description of acquisitions in 1996 through 1998.
Williams has contributed international communications assets to our
company. When we talk about our company and in the presentation of our financial
information, we include the international assets which Williams has contributed
to us.
We have prepared the accompanying table to reflect the historical
consolidated financial information of our company as if we had operated as a
stand alone business throughout the periods presented. The historical financial
information may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would
have been had we operated as a stand alone entity during the periods covered.
The summary pro forma consolidated balance sheet data give effect to the
following transactions as if they had occurred on March 31, 1999:
- the equity offering
- the notes offering
- the concurrent investments
- the recharacterization of $200 million of paid-in capital to amounts due
to Williams
Pro forma earnings per share is based upon an assumed 450,000,000 shares of
capital stock outstanding after the equity offering and the concurrent
investments and does not include any exercise of the underwriters'
over-allotment option or the issuance of shares of common stock pursuant to
deferred or restricted share awards or option grants under our company's
stock-based plans for directors, officers and other employees. Pro forma net
loss has been adjusted to include the interest expense impact of $1.3 billion of
debt with an interest rate of 9% as if the debt had been issued on January 1,
1998 and the repayment of $315 million of debt under the interim credit facility
as if the repayment had occurred on January 1, 1999.
In connection with the equity offering, we will issue deferred shares of
our common stock and grant options to purchase our common stock to directors and
selected officers and other employees of our company and Williams. Some of the
deferred shares and options are expected to be issued or granted to electing
employees in exchange for existing deferred shares of Williams common stock or
options to purchase Williams common stock on a basis intended to preserve their
economic value. We will account for the options granted in exchange for existing
Williams options as new fixed awards and record compensation expense over the
vesting period for the options based on the difference between the initial
public offering price and the exercise price of the new options. Compensation
expense for the deferred shares, whether issued in exchange for Williams
deferred shares or newly issued, will be recorded over the vesting period
5
<PAGE> 10
based on the initial public offering price. Assuming that employees elect to
exchange all eligible deferred shares and options, based upon current economic
value, we estimate that the compensation expense relating to the options and
deferred shares will be approximately $____ million over the vesting periods, of
which we estimate that approximately $__ million will be expensed during the
remainder of 1999, and approximately $____ million will be expensed annually in
2000, 2001 and 2002.
The Statement of Operations Data reflects the following items and events
that affect comparability with other years:
- In April 1997, we purchased the equipment distribution business of Nortel
Networks Corporation, formerly known as Northern Telecom Limited. We then
consolidated this equipment distribution business with ours to create
Solutions LLC. This combination effectively doubled the size of our
solutions unit.
- In October 1997, management and ownership of the fiber optic strand
excluded from the sale to LDDS were transferred from our strategic
investments unit to our network unit and intercompany transfer pricing
was established prospectively.
- In January 1998, the non-compete agreement with MCI WorldCom expired and
our network unit entered the communications network business.
- Other expense in 1997 included $42.0 million of charges primarily related
to the decision to sell our learning content business, which was our
venture in the strategic investments unit involved in the development of
training materials and manuals and provision of training classes, and the
write-down of assets and development expenses associated with other
activities in the strategic investments unit. Other expense in 1998
included a $23.2 million loss related to exiting a venture in the
strategic investments unit involved in the transmission of business
information for news and educational purposes.
- In the fourth quarter of 1998, we began to recognize revenues from sales
of dark fiber. Revenues from dark fiber sales for this period were $64.1
million. Revenues from dark fiber sales for the three months ended March
31, 1999 were $51.3 million.
Included in other financial data are EBITDA amounts. EBITDA represents
earnings before interest, income taxes, depreciation and amortization and other
non-recurring or non-cash items, such as equity earnings or losses and minority
interest. Excluded from the computation of EBITDA are charges in 1998 and 1997
included in other expense of $23.2 million and $42.0 million described above and
gains recognized in 1997 and 1996 of $44.5 million and $15.7 million. The $44.5
million gain in 1997 is attributable to our sale of 30% of Solutions LLC to
Nortel. The $15.7 million gain in 1996 is attributable to the sale of rights to
use communications frequencies. EBITDA is used by management and certain
investors as an indicator of a company's historical ability to service debt.
Management believes that an increase in EBITDA is an indicator of improved
ability to service existing debt, to sustain potential future increases in debt
and to satisfy capital requirements. However, EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either operating income, as determined by generally accepted accounting
principles, as an indicator of operating performance or cash flows from
operating, investing and financing activities, as determined by generally
accepted accounting principles, and is thus susceptible to varying calculations.
EBITDA as presented may not be comparable to other similarly titled measures of
other companies. We expect that under the permanent credit facility, which we
expect to enter into after the completion of the offerings but before September
1, 1999, our discretionary use of funds reflected by EBITDA will be limited in
order to conserve funds for capital expenditures and debt service.
6
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Network.............. $ 108,492 $ 21,166 $ 194,936 $ 43,013 $ 11,063
Solutions............ 337,292 327,446 1,367,404 1,189,798 568,072
Strategic
Investments....... 68,144 51,347 221,410 217,966 132,477
Eliminations......... (11,767) (12,187) (50,281) (22,264) (6,425)
----------- ----------- ----------- ----------- -----------
Total
revenues... 502,161 387,772 1,733,469 1,428,513 705,187
Operating expenses:
Cost of sales........ 389,747 288,553 1,294,583 1,043,932 517,222
Selling, general and
administrative.... 122,919 103,673 487,073 323,513 152,484
Provision for
doubtful
accounts.......... 8,437 1,483 21,591 7,837 2,694
Depreciation and
amortization...... 27,578 18,995 84,381 70,663 32,378
Other................ 300 (342) 34,245 45,269 500
----------- ----------- ----------- ----------- -----------
Total
operating
expenses... 548,981 412,362 1,921,873 1,491,214 705,278
----------- ----------- ----------- ----------- -----------
Loss from operations... $ (46,820) $ (24,590) $ (188,404) $ (62,701) $ (91)
=========== =========== =========== =========== ===========
Net loss............... $ (74,141) $ (26,498) $ (180,929) $ (35,843) $ (3,514)
=========== =========== =========== =========== ===========
Historical per share
data (basic):
Net loss............. $ (74,141) $ (26,498) $ (180,929) $ (35,843) $ (3,514)
Weighted average
shares
outstanding....... 1,000 1,000 1,000 1,000 1,000
Pro forma per share
data (basic):
Net loss............. $ (.23) $ (.15) $ (.66) $ (.08) $ (.01)
Weighted average
shares
outstanding....... 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000
OTHER FINANCIAL DATA:
EBITDA................. $ (19,242) $ (5,595) $ (80,873) $ 50,005 $ 32,287
Deficiency of earnings
to fixed charges..... (56,505) (26,064) (204,945) (25,697) (1,545)
Net cash provided by
(used in) operating
activities........... (90,225) (109,877) (363,833) 147,858 (1,775)
Net cash provided by
financing
activities........... 587,656 222,691 890,623 225,953 226,009
Net cash used in
investing
activities........... (442,588) (112,491) (496,076) (363,494) (224,186)
Capital expenditures... 151,238 110,117 299,481 276,249 66,900
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 96,847 $2,379,687
Working capital........................................... 501,447 2,784,287
Property, plant and equipment, net........................ 781,324 781,324
Total assets.............................................. 2,872,921 5,189,661
Long-term debt, including long-term debt due within one
year.................................................... 1,144,056 2,329,056
Total liabilities......................................... 1,838,847 3,023,847
Total stockholders' equity................................ 1,034,074 2,165,814
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1999
----------------
(NUMBERS
APPROXIMATE)
<S> <C>
OPERATING DATA:
Planned route miles......................................... 33,120
Retained network route miles.............................. 9,700
Route miles to be acquired................................ 9,320
Route miles in construction............................... 14,100
Route miles in operation.................................... 18,770
Planned retained fiber miles................................ 420,000
</TABLE>
Planned route miles are the total route miles that we expect the Williams
network to traverse upon completion. Retained network route miles are the route
miles traversed by the single fiber optic strand that Williams excluded from the
sale of its original network to LDDS in 1995. Route miles to be acquired are
those route miles that we plan to acquire through purchases or exchanges in
completing the Williams network. Route miles in construction are those route
miles (beyond the route miles on our network) that we either have constructed or
plan to construct to complete the Williams network. Planned retained fiber miles
are those fiber miles of our completed network that we expect to retain for our
use in serving our customers. Fiber miles are calculated by multiplying the
route miles traversed over a given segment by the number of fibers contained
within that segment.
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RISK FACTORS
You should carefully consider the risks described below before deciding
whether to invest in shares of our common stock.
RISKS RELATING TO OUR NETWORK UNIT
WE MUST COMPLETE THE WILLIAMS NETWORK EFFICIENTLY AND ON TIME TO INCREASE OUR
REVENUES BUT FACTORS OUTSIDE OUR CONTROL MAY PREVENT US FROM DOING SO, WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Our ability to become a leading, coast-to-coast, facilities-based provider
of communications services to other communications providers and our ability to
increase our revenues will depend in large part upon the successful, timely and
cost-effective completion of the Williams network. Difficulties in constructing
the Williams network which we cannot control could increase its estimated costs
and delay its scheduled completion, either of which could have a material
adverse effect on our business.
In addition to factors described elsewhere in "Risk Factors," factors out
of our control include:
- our management of costs related to construction of route segments
- timely performance by contractors
- technical performance of the fiber and equipment used in the Williams
network
We have embarked upon an aggressive plan to build the Williams network and
we cannot guarantee that we will be successful in completing the Williams
network in the time planned.
WE NEED TO INCREASE THE VOLUME OF TRAFFIC ON THE WILLIAMS NETWORK OR THE
WILLIAMS NETWORK WILL NOT GENERATE PROFITS
We must substantially increase the current volume of voice, data, Internet
and video transmission on the Williams network in order to realize the
anticipated cash flow, operating efficiencies and cost benefits of the Williams
network. If we do not develop long-term commitments with new large-volume
customers as well as maintain our relationships with current customers, we will
be unable to increase traffic on the Williams network, which would adversely
affect our profitability.
We believe that an important source of increased traffic will be from the
introduction by regional telephone companies of long distance services within
their historical service areas once they satisfy the applicable requirements
under the Telecommunications Act of 1996. Accordingly, delays in the
introduction of these services could have an adverse effect on our traffic flow.
See the section of this prospectus entitled "Regulation -- General regulatory
environment."
OUR NETWORK UNIT OPERATES IN A HIGHLY COMPETITIVE INDUSTRY WITH PARTICIPANTS
THAT HAVE GREATER RESOURCES AND EXISTING CUSTOMERS THAN WE HAVE, WHICH COULD
LIMIT OUR ABILITY TO INCREASE OUR MARKET SHARE
Our success depends upon our ability to increase our share of the carrier
services market by providing high quality services at prices equal to or below
those of our competitors. Increased competition could lead to price reductions,
fewer large-volume sales, under-utilization of resources, reduced operating
margins and loss of market share. Many of our competitors have,
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and some potential competitors are likely to enjoy, substantial competitive
advantages, including the following:
- greater name recognition
- greater financial, technical, marketing and other resources
- larger installed bases of customers
- well-established relationships with current and potential customers
- more extensive knowledge of the high-volume long distance services
industry
- greater international presence
Our competitors include Qwest Communications International, Inc, Level 3
Communications, Inc., IXC Communications, Inc., as well as the three U.S. long
distance fiber optic networks that are owned by each of AT&T Corp., MCI
WorldCom, Inc. and Sprint Corp.
CONSOLIDATION WITHIN THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE OUR MARKET
SHARE AND HARM OUR FINANCIAL PERFORMANCE
Consolidation of some of the major service providers and strategic
alliances in the communications industry have occurred in response to the
passage of the Telecommunications Act and further consolidation could lead to
fewer large-volume sales, reduced operating margins and loss of market share.
Regional telephone companies that fulfill required conditions under the
Telecommunications Act may choose to compete with us. In addition, significant
new and potentially larger competitors could enter our market as a result of
other regulatory changes, technological developments or the establishment of
cooperative relationships. Foreign carriers may also compete in the U.S. market.
PRICES FOR NETWORK SERVICES MAY DECLINE, WHICH MAY REDUCE OUR REVENUES
The prices we can charge our customers for transmission capacity on the
Williams network could decline for the following reasons:
- installation by us and our competitors, some of which are expanding
capacity on their existing networks or developing new networks, of fiber
and related equipment that provides substantially more transmission
capacity than needed
- recent technological advances that enable substantial increases in, or
better usage of, the transmission capacity of both new and existing fiber
- strategic alliances or similar transactions that increase the parties'
purchasing power, such as purchasing alliances among regional telephone
companies for long distance capacity
If prices for network services decline, we may experience a decline in
revenues which would have a material adverse effect on our operations.
SERVICE INTERRUPTIONS ON THE WILLIAMS NETWORK COULD EXPOSE US TO LIABILITY OR
CAUSE US TO LOSE CUSTOMERS
Our operations depend on our ability to avoid and mitigate any damages from
power losses, excessive sustained or peak user demand, telecommunications
failures, network software flaws, transmission cable cuts or natural disasters.
The failure of any equipment or facility on the Williams network could result in
the interruption of customer service until we make necessary repairs or install
replacement equipment. Additionally, if a carrier or other service provider
fails to provide the communications capacity that we have leased in order to
provide service to our customers, service to our customers would be interrupted.
If service is not restored in a timely manner, agreements with our customers may
obligate us to provide credits or other remedies to
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them, which would reduce our revenues. Service disruptions could also damage our
reputation with customers, causing us to lose existing customers or have
difficulty attracting new ones. Many of our customers' communications needs will
be extremely time sensitive, and delays in signal delivery may cause significant
losses to a customer using the Williams network. The Williams network may also
contain undetected design faults and software "bugs" that, despite our testing,
may be discovered only after the Williams network has been completed and is in
use.
WE MAY NEED TO EXPAND OR ADAPT THE WILLIAMS NETWORK IN THE FUTURE IN ORDER TO
REMAIN COMPETITIVE, WHICH COULD BE VERY COSTLY
Any expansion or adaptation of the Williams network could require
substantial additional financial, operational and managerial resources which may
not be available to us. After we complete the Williams network, we may have to
expand or adapt its components to respond to the following:
- an increasing number of customers
- demand for greater transmission capacity
- changes in our customers' service requirements
- technological advances
- government regulation
OUR NETWORK UNIT HAS GENERATED LOSSES IN ITS LIMITED OPERATING HISTORY, WHICH WE
EXPECT WILL CONTINUE
Our network unit has a limited operating history upon which you can base an
evaluation of our performance. In connection with developing the Williams
network, we have incurred operating and net losses and working capital deficits
and we expect to continue to do so at least until completion of the Williams
network. In 1998, our network unit experienced an operating loss of $27.7
million. Continued operating losses could limit our ability to obtain the cash
needed to develop the Williams network, make interest and principal payments on
our debt or fund our other business needs.
WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS OF WAY FOR THE WILLIAMS
NETWORK IN ORDER TO OPERATE THE NETWORK; IF WE ARE UNABLE TO OBTAIN AND MAINTAIN
RIGHTS OF WAY OVER DESIRED ROUTES ON COMMERCIALLY REASONABLE TERMS, OUR
PROFITABILITY MAY BE ADVERSELY AFFECTED
If we are unable to maintain all of our existing rights and permits or
obtain and maintain the additional rights and permits needed to implement our
business plan on acceptable terms, we may incur additional costs which could
have a material adverse effect on our business. We are a party to litigation
challenging our right to use railroad rights of way which the plaintiff is
seeking to have certified as a class action. It is likely that we will be
subject to other suits challenging use of all of our railroad rights of way and
the plaintiffs will also seek class certification. Approximately 15% of our
network is installed on railroad rights of way. This litigation may increase our
costs and adversely affect our profitability. See "Business -- Legal
proceedings."
WE NEED TO OBTAIN ADDITIONAL CAPACITY FOR THE WILLIAMS NETWORK FROM OTHER
PROVIDERS IN ORDER TO SERVE OUR CUSTOMERS AND KEEP OUR COSTS DOWN
We lease telecommunications capacity and obtain rights to use dark fiber
from both long distance and local telecommunications carriers in order to extend
the range of the Williams network. Any failure by these companies to provide
service to us would adversely affect our ability to serve our customers or
increase our costs of doing so.
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Costs of obtaining local services from other carriers comprise a
significant proportion of the operating expenses of long distance carriers,
including our network unit. Similarly, a large proportion of the costs of
providing international services consists of payments to other carriers. Changes
in regulation, particularly the regulation of local and international
telecommunications carriers, could indirectly but significantly affect our
network unit's competitive position; such changes could increase or decrease our
costs, relative to those of our competitors, of providing services.
RISKS RELATING TO OUR SOLUTIONS UNIT
OUR SOLUTIONS UNIT HAS EXPERIENCED LOSSES WHICH MAY CONTINUE IN THE FUTURE
In 1998, our solutions unit incurred significant losses. We have had
difficulties in integrating our equipment distribution business with Nortel's
equipment distribution business and in managing the increased complexity of our
business. Since the new systems our solutions unit is implementing to address
these problems have not yet been fully implemented or tested, we expect that our
financial results in 1999 will continue to be adversely affected by these
difficulties. These difficulties have included an inability to operate and
manage our business effectively with multiple information systems, insufficient
management resources, internal control deficiencies, a high turnover of sales
personnel, lost sales, customer dissatisfaction and increased selling, general
and administrative costs. See the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview -- Our solutions unit" for more information.
TERMINATION OF RELATIONSHIPS WITH KEY VENDORS COULD RESULT IN DELAYS OR
INCREASED COSTS
We have a series of agreements which authorize us to act as a distributor
of communications products for a variety of vendors, most significantly Nortel,
as well as Cisco Systems, Inc., NEC Corp. and others. We cannot assure you that
any vendor with which we do business will elect to continue its relationship
with us on substantially the same terms and conditions. We believe that an
interruption, or substantial modification, of our distribution relationships,
particularly with Nortel, could have a material adverse effect on our solutions
unit's business, operating results and financial condition, in that we may no
longer be able to provide services and products to our customers, or the cost of
doing so may be more expensive. See the section of this prospectus entitled
"Business -- Our solutions unit -- LLC agreement with Nortel" for more
information.
OUR SOLUTIONS UNIT OPERATES IN A HIGHLY COMPETITIVE INDUSTRY, WHICH COULD REDUCE
OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE
We face competition from communications equipment manufacturers and
distributors, as well as from other companies that offer services to integrate
systems and equipment of different types. Increased competition could lead to
price reductions, fewer sales and client projects, under-utilization of
employees, reduced operating margins and loss of market share. Many of our
competitors have significantly greater financial, technical and marketing
resources or greater name recognition than we currently have. We also face
competition from lower cost providers and from new entrants to the market.
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RISKS RELATING TO OUR COMPANY
AFTER THE OFFERINGS, WILLIAMS MAY NOT PROVIDE ADDITIONAL CAPITAL OR CREDIT
SUPPORT TO US, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO MAKE FUTURE BORROWINGS
We have funded our past capital needs mainly through borrowings or capital
contributions from Williams or through external financings guaranteed by
Williams. Following the offerings, Williams may not provide us with additional
funding or credit support. Without Williams' support, we may have less borrowing
capacity and funds may only be available to us on less favorable terms.
WE HAVE SUBSTANTIAL DEBT WHICH MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE
DISADVANTAGE
Our substantial debt may have important consequences for us, including the
following:
- our ability to obtain additional financing for acquisitions, working
capital, investments and capital or other expenditures could be impaired
or financing may not be available on terms favorable to us
- a substantial portion of our cash flow will be used to make principal and
interest payments on our debt, reducing the funds that would otherwise be
available to us for our operations and future business opportunities
- a substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations
- we may have more debt than our competitors, which may place us at a
competitive disadvantage
- our substantial debt may make us more vulnerable to a downturn in our
business or the economy generally
We had substantial deficiencies of earnings to cover fixed charges of
$204.9 million in 1998, $25.7 million in 1997 and $1.5 million in 1996.
WE MAY NOT BE ABLE TO REPAY OUR EXISTING DEBT; FAILURE TO DO SO OR TO REFINANCE
OUR DEBT COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLANS AND REALIZING
ANTICIPATED PROFITS
If we are unable to refinance our debt or to raise additional capital on
favorable terms, this may impair our ability to develop the Williams network and
to implement our other business plans. At March 31, 1999, as adjusted to give
effect to the offerings, the concurrent investments, the recharacterization of
$200 million of paid-in capital to amounts due to Williams, the payment of
related expenses and the application of the net proceeds to repay debt, we would
have had approximately $2.3 billion of long-term debt, approximately $2.2
billion of stockholders' equity and a debt-to-equity ratio of approximately 1.08
to 1. We have made additional borrowings since March 31, 1999 under our interim
credit facility and anticipate making further borrowings under our interim
credit facility or our new permanent credit facility, all of which will increase
the amount of our outstanding debt and our debt-to-equity ratio. Our ability to
make interest and principal payments on our debt and borrow additional funds on
favorable terms depends on the future performance of our business. If we do not
have enough cash flow in the future to make interest or principal payments on
our debt, we may be required to refinance all or a part of our debt or to raise
additional capital. We do not know if refinancing our debt will be possible at
that time or if we will be able to find someone who will lend us more money, nor
do we know upon what terms we could borrow more money.
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RESTRICTIONS AND COVENANTS IN OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM IN THE
FUTURE
The notes and some of our other debt and financing arrangements contain a
number of significant limitations that will restrict our ability to conduct our
business and to:
- borrow additional money
- pay dividends or other distributions to our stockholders
- make investments
- create liens on our assets
- sell assets
- enter into transactions with affiliates
- engage in mergers or consolidations
These restrictions may limit our ability to obtain future financing, fund
needed capital expenditures or withstand a future downturn in our business or
the economy.
IF WE ARE UNABLE TO COMPLY WITH THE RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS, THERE COULD BE A DEFAULT UNDER THE TERMS OF THESE AGREEMENTS, WHICH
COULD RESULT IN AN ACCELERATION OF PAYMENT OF FUNDS THAT WE HAVE BORROWED
If we are unable to comply with the restrictions and covenants in our debt
agreements, there would be a default under the terms of our agreements. Some of
our debt agreements also require us and certain of our subsidiaries to maintain
specified financial ratios and satisfy financial tests. Our ability to meet
these financial ratios and tests may be affected by events beyond our control;
as a result, we cannot assure you that we will be able to meet such tests. In
the event of a default under these agreements, our lenders could terminate their
commitments to lend to us or accelerate the loans and declare all amounts
borrowed due and payable. Borrowings under other debt instruments that contain
cross-acceleration or cross-default provisions may also be accelerated and
become due and payable. If any of these events occur, we cannot assure you that
we would be able to make the necessary payments to the lenders or that we would
be able to find alternative financing. Even if we could obtain alternative
financing, we cannot assure you that it would be on terms that are favorable or
acceptable to us.
IF WE ARE UNABLE TO SECURE ANY NEEDED ADDITIONAL FINANCING OUR ABILITY TO
COMPLETE THE WILLIAMS NETWORK AND TO CONDUCT OUR BUSINESS GENERALLY COULD BE
ADVERSELY AFFECTED
We may need additional capital to complete the build of the Williams
network and meet our long-term business strategies. If we need additional funds,
our inability to raise them may have an adverse effect on our operations. If we
decide to raise funds through the incurrence of additional debt, we may become
subject to additional or more restrictive financial covenants and ratios. The
actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of financial, business and other
factors, many of which are beyond our control. Our ability to arrange financing
and the costs of financing depend upon many factors, including:
- general economic and capital markets conditions
- conditions in the communications market
- regulatory developments
- credit availability from banks or other lenders
- investor confidence in the telecommunications industry and our company
- the success of the Williams network
- provisions of tax and securities laws that are conducive to raising
capital
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WE MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES TO ENSURE THE GROWTH AND SUCCESS
OF OUR COMPANY
We believe that our growth and future success will depend in large part on
our ability to attract and retain highly skilled and qualified personnel. Any
inability of ours in the future to hire, train and retain a sufficient number of
qualified employees could impair our ability to manage and maintain our business
and our customers' communications infrastructures. Some of the problems
experienced by our solutions unit in 1998 were due to high turnover of
managerial, technical and sales personnel, as well as insufficient management
resources to run our solutions unit. The competition for qualified personnel in
the communications industry is intense.
SBC COULD TERMINATE OUR STRATEGIC ALLIANCE, WHICH COULD HARM OUR BUSINESS
If SBC terminates our strategic alliance, there could be a material adverse
effect on our business, financial condition and results of operations. Because
SBC is a major customer of ours, termination of our agreements with SBC would
result in decreased revenues and increased marginal costs. Our alliance
agreements with SBC are material to us and SBC may terminate these agreements in
certain cases, including the following:
- if SBC does not complete its proposed acquisition of Ameritech Corp. or
if regulators impose conditions on the acquisition that SBC refuses to
accept
- if we begin to offer retail long distance or local services on the
Williams network under some circumstances
- if the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC, the
affected agreement may be terminated
- if we materially breach our agreements with SBC causing a material
adverse effect on the commercial value of the relationship to SBC
- if we have a change of control
- if SBC acquires an entity which owns a nationwide fiber optic network in
the U.S. and determines not to sell us several long distance assets
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher.
INTEL COULD TERMINATE OUR STRATEGIC ALLIANCE, WHICH COULD HARM OUR BUSINESS
Our alliance agreements with Intel are material to us and Intel may
terminate these agreements in certain cases. If the alliance agreements with
Intel are terminated for any reason before our initial public offering is
completed, then either party would have the right to cancel the planned purchase
by Intel of our common stock. If this occurs, we would not receive the
anticipated proceeds from the sale of our common stock to Intel and would not
have the revenues that we anticipate from the alliance in the future.
TELEFONOS DE MEXICO COULD TERMINATE OUR STRATEGIC ALLIANCE, WHICH COULD HARM OUR
BUSINESS
Our alliance agreements with Telefonos de Mexico are material to us and
Telefonos de Mexico may terminate these agreements in certain cases. If the
alliance agreements with Telefonos de Mexico are terminated for any reason
before our initial public offering is completed, then either party would have
the right to cancel the planned purchase by Telefonos de Mexico of our common
stock. If this occurs, we would not receive the anticipated proceeds
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from the sale of our common stock to Telefonos de Mexico and would not have the
revenues that we anticipate from the alliance in the future.
WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS, AS A RESULT OF WHICH THE LOSS
OF EVEN A SINGLE CUSTOMER OR A FEW CUSTOMERS COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS
We currently derive a large percentage of the revenue generated by our
network unit and Vyvx from a small number of customers, as a result of which the
loss of even a single customer or a few customers could have a material adverse
impact on our business. There is no guarantee that these customers will continue
to do business with us after the expiration of their commitments with us.
COMMUNICATIONS TECHNOLOGY CHANGES VERY RAPIDLY AND OUR TECHNOLOGY COULD BE
RENDERED OBSOLETE
We expect that new products and technologies will emerge and that existing
products and technologies, including voice transmission over the Internet and
high speed transmission of packets of data, will further develop. These new
products and technologies may reduce the prices for our services or they may be
superior to, and render obsolete, the products and services we offer and the
technologies we use. As a result, our most significant competitors in the future
may be new entrants to our markets which would not be burdened by an installed
base of older equipment. It may be very expensive for us to upgrade our products
and technology in order to continue to compete effectively. Our future success
depends, in part, on our ability to anticipate and adapt in a timely manner to
technological changes, including wider acceptance and usage of voice
transmission over the Internet.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD EXPOSE US TO LIABILITY
FROM THIRD PARTIES
We, and the companies with which we do business, must upgrade our computer
systems and software products to accept four-digit entries that distinguish the
year 2000 from the year 1900. Due to the limited availability and cost of
trained personnel, the difficulty in locating all relevant computer code and our
reliance on third-party suppliers and vendors, serious systems failures may
occur. These systems failures may result in litigation with our vendors,
suppliers or customers, particularly for our solutions unit, given the nature of
its extensive product offerings, its maintenance obligations and broad customer
base.
We cannot assure you that we will achieve full year 2000 compliance before
the end of 1999 or that we will develop and implement effective contingency
plans for all possible scenarios. We have identified two areas that would most
likely result in significant problems for our business. First, the system
replacements scheduled for completion during 1999 may be delayed. Second, we may
not be able to remedy a material systems failure. Either of these could lead to
lost revenues, increased operating costs, loss of customers or other business
interruptions of a material nature, and potential litigation claims including
mismanagement, misrepresentation or breach of contract. See the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 readiness disclosure" for more
information.
IF WE DO NOT HAVE SOPHISTICATED INFORMATION AND BILLING SYSTEMS, WE MAY NOT BE
ABLE TO ACHIEVE DESIRED OPERATING EFFICIENCIES
Sophisticated information and billing systems are vital to our growth and
ability to monitor costs, bill customers, fulfill customer orders and achieve
operating efficiencies. Our plans for developing and implementing our
information and billing systems rely primarily on the delivery of products and
services by third party vendors. We may not be able to develop new business,
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identify revenues and expenses, service customers, collect revenues or develop
and maintain an adequate work force if any of the following occur:
- vendors fail to deliver proposed products and services in a timely and
effective manner or at acceptable costs
- we fail to adequately identify all of our information and processing
needs
- our related processing or information systems fail
- we fail to upgrade systems when necessary
- we fail to integrate our systems with those of our major customers
OUR BUSINESS IS SUBJECT TO REGULATION THAT COULD CHANGE IN AN ADVERSE MANNER
The communications business is subject to federal, state, local and foreign
regulation. Regulation of the telecommunications industry is changing rapidly,
with ongoing effects on our opportunities, competition and other aspects of our
business. We cannot assure you that future regulatory, judicial or legislative
activities will not have a material adverse effect on us. The regulatory
environment varies substantially from state to state. Generally, we must obtain
and maintain certificates of authority from regulatory bodies in most states
where we offer intrastate services or in order to use eminent domain powers to
obtain rights of way. We also must obtain prior regulatory approval of the
services, equipment and pricing for our intrastate services in most of these
jurisdictions. In addition, some of our alliance partners are subject to
extensive regulation, which could adversely affect the expected benefits of our
arrangements with them by preventing us or them from selling each other's
products and services as planned. For example, while the terms of our agreements
with SBC are intended to comply with restrictions on SBC's provision of long
distance services, various aspects of these arrangements have not been tested
under the Telecommunications Act.
FAILURE TO DEVELOP THE "WILLIAMS COMMUNICATIONS" BRAND COULD ADVERSELY AFFECT
OUR BUSINESS
We believe that brand recognition is very important in the communications
industry. If the "Williams Communications" brand awareness does not increase or
is weakened, it could decrease the attractiveness of our company's product and
service offerings to potential customers, which could result in decreased
revenues. We have licensed the use of the Williams trademark from Williams for
so long as Williams owns at least 50% of our outstanding capital stock. The loss
of this license would require us to establish a new brand and build new brand
recognition.
OUR INTERNATIONAL OPERATIONS AND INVESTMENTS MAY EXPOSE US TO RISKS WHICH COULD
HARM OUR BUSINESS
We have operations based in Canada, Australia and Mexico and investments in
companies with operations in Brazil and Chile. We are exposed to risks inherent
in international operations. These include:
- general economic, social and political conditions
- the difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems
- tax rates in some foreign countries may exceed those in the United States
and foreign earnings may be subject to withholding requirements or the
imposition of tariffs, exchange controls or other restrictions
- required compliance with a variety of foreign laws and regulations which
impose a range of restrictions on the companies' operations, corporate
governance and shareholders, with penalties for noncompliance including
loss of license and monetary fines
- changes in United States laws and regulations relating to foreign trade
and investment
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CURRENCY EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
Our international operations will cause our results of operations and the
value of our assets to be affected by the exchange rates between the U.S. dollar
and the currencies of the additional countries in which we have operations and
assets. Fluctuations in foreign currency rates may adversely affect reported
earnings and the comparability of period-to-period results of operations. On
January 13, 1999, the Brazilian Central Bank removed the limits on the valuation
of the Brazilian Real compared to the U.S. dollar, allowing free market
fluctuation of the exchange rate. As a result, the value of the Brazilian Real
in U.S. dollars has declined approximately 33% from December 31, 1998 to June
30, 1999. The ultimate duration and severity of the conditions in Brazil may
have a material adverse effect on our investments there. In addition, Mexico and
Chile have historically experienced exchange rate volatility. Changes in
currency exchange rates may affect the relative prices at which we and foreign
competitors sell products in the same market. In addition, changes in the value
of the relevant currencies may affect the cost of items required in our
operations.
RISKS RELATING TO OUR RELATIONSHIP WITH WILLIAMS
WILLIAMS HAS SIGNIFICANT CONTROL OVER OUR COMPANY, WHICH COULD ADVERSELY AFFECT
OUR STOCKHOLDERS
After completion of the equity offering and the concurrent investments,
Williams will hold 100% of our Class B common stock and will therefore own
approximately % of the voting power of our company. As a result, Williams will
be in a position to cause our company to take actions that benefit only
Williams.
As long as Williams continues to beneficially own shares of capital stock
representing more than 50% of the combined voting power of our outstanding
capital stock, Williams will be able to exercise a controlling influence over
our company, including:
- composition of our board of directors and, through it, the direction and
policies of our company, including the appointment and removal of
officers
- mergers or other business combinations involving our company
- acquisition or disposition of assets by our company
- future issuances of common stock or other securities of our company
- incurrence of debt by our company
- amendments, waivers and modifications to the agreements between us and
Williams being entered into in connection with the offerings
- payment of dividends on our common stock
- treatment of items in our tax returns that are consolidated or combined
with Williams' tax returns
CONFLICTS OF INTEREST MAY ARISE BETWEEN US AND WILLIAMS WHICH COULD BE RESOLVED
IN A MANNER UNFAVORABLE TO OUR COMPANY
Conflicts of interest could arise relating to the nature, quality and
pricing of services or products provided by us to Williams or by Williams to us,
any payment of dividends by us to Williams, any prepayment of the borrowings by
us from Williams and general issues relating to maintaining or increasing our
profitability. In addition, one of our directors is both a senior officer and
director, and seven of our directors are also senior officers, of Williams and
some of these individuals and a number of our executive officers own substantial
amounts of Williams stock and options for shares of Williams stock. There could
be potential conflicts of interest
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when these directors and officers are faced with decisions that could have
different implications for our company and Williams.
Our directors who are also directors or executive officers of Williams will
have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us, such as
acquisitions, financings and other corporate opportunities that may be suitable
for both us and Williams. As a result, it is possible that these directors and
executive officers could place the interests of Williams ahead of our interests
when the two are incompatible. Our restated certificate of incorporation
contains provisions designed to facilitate resolution of these potential
conflicts which we believe will assist the directors of our company in
fulfilling their fiduciary duties to our stockholders. By becoming a stockholder
in our company, you will be considered to have consented to these provisions of
our restated certificate of incorporation. Although these provisions are
designed to resolve conflicts between us and Williams fairly, we cannot assure
you that this will occur.
WE RELY ON WILLIAMS FOR ADMINISTRATIVE SERVICES WHICH WILLIAMS COULD CEASE TO
PROVIDE TO US; WE MAY BE UNABLE TO REPLACE THESE SERVICES IN A TIMELY MANNER OR
ON FAVORABLE TERMS
We have never operated as a stand alone company. While Williams is
contractually obligated to provide us with certain administrative services, we
cannot assure you that these services will be sustained at the same level as
when we were wholly owned by Williams or that we will obtain the same benefits.
We will also lease and sub-lease office and manufacturing facilities from
Williams. We cannot assure you that, after the expiration of these various
arrangements, we will be able to replace the administrative services or enter
into appropriate leases in a timely manner or on terms and conditions, including
cost, as favorable as those we will receive from Williams.
These agreements were made in the context of a parent-subsidiary
relationship. The prices charged to us under these agreements may be higher or
lower than the prices that may be charged by unaffiliated third parties for
similar services. For more information about these arrangements, see the section
of this prospectus entitled "Relationship Between Our Company and Williams."
RISKS RELATING TO OUR COMMON STOCK
THE POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR
STOCKHOLDERS
Prior to the equity offering, you could not buy or sell our common stock
publicly. Although an application will be made to list our shares of common
stock on the NYSE, an active public market for our common stock might not
develop or be sustained after the equity offering. Moreover, even if such a
market does develop, the market price of our common stock may decline below the
initial public offering price. The market price of our common stock could be
subject to significant fluctuations due to a variety of factors, including
actual or anticipated fluctuations in our operating results and financial
performance, announcements of technological innovations by our existing or
future competitors or changes in financial estimates by securities analysts.
Historically, the market prices for securities of emerging companies in the
communications industry have been highly volatile. In addition, the stock market
has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of our common stock. Furthermore, following periods of
volatility in the market price of a company's securities, stockholders of such a
company have
19
<PAGE> 24
often instituted securities class action litigation against the company. Any
such litigation against our company could result in substantial costs and a
diversion of management's attention and resources, which could adversely affect
the conduct of our business.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING MAY ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could drop in response to possible
sales of a large number of shares of common stock in the market after the equity
offering or to the perception that such sales could occur. As a result, we may
be unable to raise additional capital through the sale of equity at prices
acceptable to us.
We have entered into a registration rights agreement with Williams which
enables Williams to require us to register shares of our common stock owned by
Williams and to include those shares in registrations of common stock made by us
in the future. We have also entered into agreements with SBC, Intel and
Telefonos de Mexico which provide these three companies with registration rights
which enable them to require us to register shares of our common stock they own
after a period of time. If these companies exercise their registration rights,
the additional shares that become eligible for public sale as a consequence
could affect the price at which our shares trade.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BY-LAWS COULD LIMIT OUR SHARE PRICE
AND DELAY A TAKEOVER OR CHANGE IN CONTROL OF OUR COMPANY
Our restated certificate of incorporation and by-laws include provisions
that could delay, deter or prevent a future takeover or change in control of our
company. These provisions include the disproportionate voting rights of the
Class B common stock (relative to the common stock) to elect a majority of the
members of our board of directors and the authorization of our board to issue,
without stockholder approval, one or more series of preferred stock. In
addition, our directors are organized into multiple classes and the members of
only one class are elected each year. These provisions and our stockholder
rights plan may have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of our company, even
though such a change in ownership would be economically beneficial to our
company and our stockholders. See the section of this prospectus entitled
"Description of Capital Stock" for more information.
20
<PAGE> 25
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are principally contained in the sections "Prospectus Summary,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. Forward-
looking statements include but are not limited to:
- our expectations and estimates as to completion dates, construction costs
and subsequent maintenance and growth of the Williams network
- our ability to implement successfully our operating strategy and attract
sufficient capacity volumes on the Williams network
- future financial performance, including growth in net sales and earnings
- our continuing relationship with Williams
- our plan to address the Year 2000 issue, the costs associated with Year
2000 compliance and the results of Year 2000 non-compliance by us or one
or more of our customers, suppliers or other strategic business partners
In addition to factors that may be described in our filings with the
Securities and Exchange Commission and this prospectus, the following factors,
among others, could cause our actual results to differ materially from those
expressed in any forward-looking statements we make:
- the effects of and changes in political and/or economic conditions,
including inflation, interest rates and monetary conditions, and in
communications, trade, monetary, fiscal and tax policies in international
markets, including Mexico, Canada, Brazil, Australia and Chile
- changes in external competitive market factors or in our internal
budgeting process which might affect trends in our results of operations
- intense competition from other communications companies
- rapid, unpredictable and dramatic changes in the technological,
regulatory or business environment applicable to us or the communications
industry generally
- changes in the prices of equipment, supplies, rights of way or
construction expenses necessary to complete the Williams network
You should carefully review our consolidated financial statements and
related notes included in this prospectus as well as the risk factors described
in this prospectus before deciding to invest in shares of our common stock.
We urge you to consider that statements which use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions, as they relate to our management, are intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties.
21
<PAGE> 26
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
shares of common stock will be approximately $606.7 million, or
approximately $____ million if the underwriters exercise their over-allotment
option in full, based on an assumed initial public offering price of $____ per
share. We estimate that the net proceeds we will receive from the notes offering
will be approximately $1.27 billion. In addition, we estimate that we will
receive approximately $725 million in net proceeds from the concurrent
investments.
We intend to use the net proceeds from the offerings and the concurrent
investments, together with borrowings under our permanent credit facility, to
develop and light the Williams network, to fund operating losses, to repay
portions of our debt and for working capital and general corporate purposes. See
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and capital
resources -- Anticipated funding sources and uses."
At the time of the offerings we anticipate that we will have approximately
$600 million in borrowings outstanding under our interim loan facility. We plan
to repay borrowings outstanding under this interim loan facility with proceeds
from the offerings. The commitment under the interim loan facility bears
interest at a variable rate based on a spread over 3 month LIBOR per annum and
matures on September 30, 1999. Borrowings under the interim credit facility were
used to repay $315 million of bank borrowings under our revolving credit
facility, which were incurred to pay for our network unit's capital expenditures
and to fund other cash needs.
DIVIDEND POLICY
We have not paid any cash dividends on our capital stock since 1997. We do
not expect to pay cash dividends on our capital stock in the foreseeable future.
The terms of the notes and our other debt agreements place limitations on the
payment of cash dividends. We currently intend to retain our future earnings, if
any, to finance the operation and development of our business. Future dividends,
if any, will be determined by our board of directors and will depend on the
success of our operations, capital needs, financial conditions, contractual
restrictions and other factors that our board of directors considers. See the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements" for more information.
22
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 on an
actual basis and as adjusted to give effect to the equity offering, the notes
offering, the concurrent investments and the recharacterization of $200 million
of paid-in capital to amounts due to Williams, after deducting underwriting
discounts and commissions and estimated expenses, and after application of the
net proceeds to repay debt. The adjustments for the equity offering are based on
an assumed initial public offering price of $____, the midpoint of the price
range on the cover of this prospectus. The table assumes that the underwriters
do not exercise their over-allotment option. The table does not take into
consideration any additional shares of our common stock issued pursuant to
deferred share awards and does not take into consideration any option grants as
described in the section of this prospectus entitled "Management -- New
stock-based and incentive plans of our company -- Treatment of specified
Williams stock awards."
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents.................................. $ 96,847 $2,379,687
========== ==========
Long-term debt due within one year......................... $ 622 $ 622
========== ==========
Long-term debt:
Due to affiliates........................................ $ 825,044 1,025,044
__% senior notes due 200_................................ -- 1,300,000
Other.................................................... 318,390 3,390
---------- ----------
Total long-term debt.................................. 1,143,434 2,328,434
Stockholders' equity:
Common stock, $1.00 par value per share:
1,000 shares authorized; and 1,000 shares issued and
outstanding......................................... 1 --
Class A common stock, $0.01 par value per share:
1,000,000,000 shares authorized; and ____ shares
issued and outstanding.............................. --
Class B common stock, $0.01 par value per share:
500,000,000 shares authorized; and ____ shares issued
and outstanding..................................... --
Preferred stock, $0.01 par value per share:
500,000,000 shares authorized; no shares issued or
outstanding......................................... -- --
Capital in excess of par value........................... 1,356,891
Accumulated deficit...................................... (392,091) (392,091)
Accumulated other comprehensive income................... 69,273 69,273
---------- ----------
Total stockholders' equity......................... 1,034,074 2,165,814
---------- ----------
Total capitalization............................ $2,177,508 $4,494,248
========== ==========
</TABLE>
23
<PAGE> 28
DILUTION
As of March 31, 1999, our consolidated net tangible book value was $610.1
million, or $____ per share of common stock, based on the expected number of
450,000,000 shares outstanding upon completion of the equity offering and the
concurrent investments. Consolidated net tangible book value per share
represents the total amount of our consolidated tangible assets, reduced by the
amount of total consolidated liabilities and divided by the number of shares of
common stock outstanding. Tangible assets are defined as our consolidated
assets, excluding intangible assets such as goodwill. After giving effect to the
equity offering and the concurrent investments, after deducting underwriting
discounts and commissions and estimated expenses, the recharacterization of $200
million of paid-in capital to amounts due to Williams and after application of
the net proceeds from the offerings and the concurrent investments, our net
consolidated tangible book value at March 31, 1999 would have been approximately
$1.74 billion, or $____ per share. This represents an immediate increase in
consolidated net tangible book value of approximately $____ per share to
Williams and an immediate dilution of $____ per share to new investors in the
equity offering.
Dilution per share represents the difference between the price per share to
be paid by new investors and the net consolidated tangible book value per share
immediately after the equity offering and the concurrent investments. The
following table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
----------
Consolidated net tangible book value before the equity
offering, the concurrent investments and the
recharacterization of $200 million of paid-in capital to
amounts due to Williams...................................
-----
Consolidated increase per share attributable to new
investors, including the concurrent investments...........
-----
Adjusted consolidated tangible book value per share after
the equity offering, the concurrent investments and the
recharacterization of $200 million of paid-in capital to
amounts due to Williams...................................
----------
Net consolidated tangible book value dilution per share to
new investors............................................. $
----------
</TABLE>
This table does not take into account the issuance of deferred shares or
the exercise of options to be granted at the time of the completion of the
equity offering. See the section of this prospectus entitled "Management -- New
stock-based and incentive plans of our company." If these amounts had been taken
into consideration, assuming the exercise of all options and the receipt of the
full amount of cash consideration, the dilution per share to new investors would
have been reduced by $____ per share.
The following table sets forth, on a pro forma basis at March 31, 1999, the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid to us by Williams, by SBC, by Intel,
by Telefonos de Mexico and by the new investors purchasing shares of common
stock in the equity offering, before deducting estimated underwriting discounts
and commissions and estimated expenses of the equity offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- -------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Williams..................... % $ % $
SBC, Intel and Telefonos de
Mexico..................... $
Investors in the equity
offering................... $
----------- ----- -------------- -----
Total................... 100.0% $ 100.0% $
=========== ===== ============== =====
</TABLE>
24
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
In the table below, we provide you with historical selected consolidated
financial and operating data derived from our consolidated financial statements.
We have prepared the financial information using our consolidated financial
statements for the five years ended December 31, 1998 and the three months ended
March 31, 1999 and 1998. Our consolidated balance sheets as of December 31, 1998
and 1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998 have been audited by Ernst & Young LLP, independent auditors, whose
report is based in part on the reports of Arthur Andersen S/C, independent
public accountants. When you read these historical selected consolidated
financial and operating data, it is important that you also read the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included in this prospectus.
In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber optic
network and the associated consumer, business and carrier customers. Along the
original nationwide network, Williams kept an approximately 9,700 route-mile
single fiber optic strand (the "Retained WilTel Network"), its
telecommunications equipment distribution business and Vyvx, a leading provider
of multimedia fiber transmission for the broadcast industry. This fiber strand
can only be used to transmit video and multimedia services, including Internet
services, through July 1, 2001. The Retained WilTel Network, along with Vyvx,
our solutions unit and a number of acquired companies, formed the basis for what
is today our company. See Note 2 to our consolidated financial statements for a
description of acquisitions in 1996 through 1998.
Williams has contributed international communications assets to our
company. When we talk about our company and in the presentation of our financial
information, we include the international assets which Williams has contributed
to us.
We have prepared the accompanying table to reflect the historical
consolidated financial information of our company as if we had operated as a
stand alone business throughout the periods presented. The historical financial
information may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would
have been had we operated as a separate, stand alone entity during the periods
covered.
Pro forma earnings per share is based upon an assumed 450,000,000 shares of
capital stock outstanding after the equity offering and the concurrent
investments and does not include any exercise of the underwriters' overallotment
option or the issuance of shares of common stock pursuant to deferred share
awards or option grants under our company's stock-based plans for directors,
officers and other employees. Pro forma net loss has been adjusted to include
the interest expense impact of $1.3 billion of debt with an interest rate of 9%
as if the debt had been issued on January 1, 1998 and the repayment of $315
million of debt under the interim credit facility as if the repayment had
occurred on January 1, 1999.
In connection with the equity offering, we will issue deferred shares of
our common stock and grant options to purchase our common stock to directors and
selected officers and other employees of our company and Williams. Some of the
deferred shares and options are expected to be issued or granted to electing
employees in exchange for existing deferred shares of Williams common stock or
options to purchase Williams common stock on a basis intended to preserve their
economic value. We will account for the options granted in exchange for existing
Williams options as new fixed awards and record compensation expense over the
vesting period for the options based on the difference between the initial
public offering price and the exercise
25
<PAGE> 30
price of the new options. Compensation expense for the deferred shares, whether
issued in exchange for Williams deferred shares or newly issued, will be
recorded over the vesting period based on the initial public offering price.
Assuming that employees elect to exchange all eligible deferred shares and
options, based upon current economic value, we estimate that the compensation
expense relating to the options and deferred shares will be approximately $____
million over the vesting periods, of which we estimate that approximately $____
million will be expensed during the remainder of 1999 and approximately $____
million will be expensed annually in 2000, 2001 and 2002.
Included in other financial data are EBITDA amounts. EBITDA represents
earnings before interest, income taxes, depreciation and amortization and other
non-recurring or non-cash items, such as equity earnings or losses and minority
interest. Excluded from the computation of EBITDA are charges in 1998 and 1997
included in other expense of $23.2 million and $42.0 million described below and
the gains recognized in 1997 and 1996 of $44.5 million and $15.7 million
described below. EBITDA is used by management and certain investors as an
indicator of a company's historical ability to service debt. Management believes
that an increase in EBITDA is an indicator of improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to either operating
income, as determined by generally accepted accounting principles, nor as an
indicator of operating performance or cash flows from operating, investing and
financing activities, as determined by generally accepted accounting principles,
and is thus susceptible to varying calculations. EBITDA as presented may not be
comparable to other similarly titled measures of other companies. We expect that
under the permanent credit facility, which we expect to enter into after
completion of the offerings but before September 1, 1999, our discretionary use
of funds reflected by EBITDA will be limited in order to conserve funds for
capital expenditures and debt service.
The Statement of Operations Data reflects the following items and events
that affect comparability with other years as follows:
- In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber
optic network and the associated consumer, business and carrier
customers. We accounted for the sale as a disposal of a business segment
and accordingly have reported the results of the sold business as
discontinued operations.
- In 1996, we recognized a gain of $15.7 million from the sale of rights to
use communications frequencies for approximately $38.0 million.
- In April 1997, we purchased Nortel's equipment distribution business,
which we then combined with our equipment distribution business to create
Solutions LLC. This combination effectively doubled the size of our
solutions unit. We recorded the 30% ownership reduction in our operations
contributed to Solutions LLC as a sale to Nortel and recognized a gain of
$44.5 million based on the excess of the fair value over the net book
value. In 1997, we began to recognize a minority interest in income
(loss) of subsidiaries.
- In October 1997, management and ownership of the Retained WilTel Network
were transferred from our strategic investments unit to our network unit
and intercompany transfer pricing was established prospectively. In
addition, consulting, outsourcing and the management of Williams'
internal telephone operations, activities previously performed within our
strategic investments unit, were transferred to our network unit. For
26
<PAGE> 31
comparative purposes, the 1996 and 1997 consulting, outsourcing and
internal telephone management activities previously performed in our
strategic investments unit that were transferred to our network unit have
been reflected in our network unit's results. See Note 3 to our
consolidated financial statements for more information regarding segment
disclosures.
- Other expense in 1997 included $42.0 million of charges primarily related
to the decision to sell our learning content business and the write-down
of assets and development expenses associated with other activities in
the strategic investments unit. Other expense in 1998 included a $23.2
million loss related to exiting a venture in the strategic investments
unit involved in the transmission of business information for news and
educational purposes.
- Williams has historically been the primary funding source for our
activities. In 1997, most of our funding was through direct capital
contributions. Prior to 1997 and in 1998, funding included
interest-bearing related party borrowings. In 1997 and 1998, we began the
process of capitalizing interest associated with the construction of
assets.
- In the fourth quarter of 1998, we began to recognize revenues from dark
fiber sales. Dark fiber revenues for this period were $64.1 million.
Revenues from dark fiber sales for the three months ended March 31, 1999
were $51.3 million.
- Under our tax sharing arrangement with Williams, after the equity
offering we will generally receive the benefit of net operating losses
only while we remain part of Williams' consolidated tax group and only to
the extent we would be able to utilize them if we filed separate income
tax returns. If we had filed separate federal income tax returns for 1997
and 1998, the deferred federal income tax benefit would have been
increased by approximately $12.8 million and $5.6 million. These amounts
reflect the benefit of a net deferred tax asset for federal net operating
loss carryforwards to the extent of the existing net deferred tax
liability that would have been reflected by us on a separate filing
basis.
- The recharacterization of $200 million of paid-in capital to amounts due
to Williams.
27
<PAGE> 32
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------
1999 1998 1998 1997
------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Network................. $ 108,492 $ 21,166 $ 194,936 $ 43,013
Solutions............... 337,292 327,446 1,367,404 1,189,798
Strategic Investments... 68,144 51,347 221,410 217,966
Eliminations............ (11,767) (12,187) (50,281) (22,264)
------------ ------------ ------------ ------------
Total
revenues..... 502,161 387,772 1,733,469 1,428,513
Operating expenses:
Cost of sales........... 389,747 288,553 1,294,583 1,043,932
Selling, general and
administrative....... 122,919 103,673 487,073 323,513
Provision for doubtful
accounts............. 8,437 1,483 21,591 7,837
Depreciation and
amortization......... 27,578 18,995 84,381 70,663
Other................... 300 (342) 34,245 45,269
------------ ------------ ------------ ------------
Total operating
expenses..... 548,981 412,362 1,921,873 1,491,214
------------ ------------ ------------ ------------
Income (loss) from
operations.............. (46,820) (24,590) (188,404) (62,701)
Interest accrued.......... (10,536) (1,739) (18,650) (8,714)
Interest capitalized...... 4,135 1,739 11,182 7,781
Equity losses............. (10,159) (1,479) (7,908) (2,383)
Investing income.......... 1,025 369 1,931 670
Minority interest in
(income) loss of
subsidiaries............ 5,836 (1,460) 15,645 (13,506)
Gain on sale of interest
in subsidiary........... -- -- -- 44,540
Gain on sale of assets.... -- -- -- --
Other income (loss),
net..................... (174) (104) 178 508
------------ ------------ ------------ ------------
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Network................. $ 11,063 $ -- $ --
Solutions............... 568,072 494,919 396,640
Strategic Investments... 132,477 44,000 18,247
Eliminations............ (6,425) -- --
------------ ------------ ------------
Total
revenues..... 705,187 538,919 414,887
Operating expenses:
Cost of sales........... 517,222 402,336 316,891
Selling, general and
administrative....... 152,484 93,560 78,552
Provision for doubtful
accounts............. 2,694 2,932 3,866
Depreciation and
amortization......... 32,378 21,050 18,554
Other................... 500 (1,240) (224)
------------ ------------ ------------
Total operating
expenses..... 705,278 518,638 417,639
------------ ------------ ------------
Income (loss) from
operations.............. (91) 20,281 (2,752)
Interest accrued.......... (17,367) (13,999) (7,405)
Interest capitalized...... -- -- --
Equity losses............. (1,601) (72) 243
Investing income.......... 296 405 41
Minority interest in
(income) loss of
subsidiaries............ -- -- --
Gain on sale of interest
in subsidiary........... -- -- --
Gain on sale of assets.... 15,725 -- --
Other income (loss),
net..................... (108) 148 44
------------ ------------ ------------
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------
1999 1998 1998 1997
------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes..... (56,693) (27,264) (186,026) (33,805)
(Provision) benefit for
income taxes............ (17,448) 766 5,097 (2,038)
------------ ------------ ------------ ------------
Loss from continuing
operations.............. (74,141) (26,498) (180,929) (35,843)
Income from discontinued
operations.............. -- -- -- --
------------ ------------ ------------ ------------
Net income (loss)......... $ (74,141) $ (26,498) $ (180,929) $ (35,843)
============ ============ ============ ============
Historical per share data
(basic):
Loss from continuing
operations........... $ (74,141) $ (26,498) $ (180,929) $ (35,843)
Income from discontinued
operations........... $ -- $ -- $ -- $ --
Net income (loss)....... $ (74,141) $ (26,498) $ (180,929) $ (35,843)
Weighted average shares
outstanding.......... 1,000 1,000 1,000 1,000
Pro forma per share data
(basic):
Loss from continuing
operations........... $ (.23) $ (.15) $ (.66) $ (.08)
Income from discontinued
operations........... $ -- $ -- $ -- $ --
Net income (loss)....... $ (.23) $ (.15) $ (.66) $ (.08)
Weighted average shares
outstanding.......... 450,000,000 450,000,000 450,000,000 450,000,000
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes..... (3,146) 6,763 (9,829)
(Provision) benefit for
income taxes............ (368) (8,380) (2,710)
------------ ------------ ------------
Loss from continuing
operations.............. (3,514) (1,617) (12,539)
Income from discontinued
operations.............. -- 1,018,800 94,001
------------ ------------ ------------
Net income (loss)......... $ (3,514) $ 1,017,183 $ 81,462
============ ============ ============
Historical per share data
(basic):
Loss from continuing
operations........... $ (3,514) $ (1,614) $ (12,539)
Income from discontinued
operations........... $ -- $ 1,018,800 $ 94,001
Net income (loss)....... $ (3,514) $ 1,017,183 $ 81,462
Weighted average shares
outstanding.......... 1,000 1,000 1,000
Pro forma per share data
(basic):
Loss from continuing
operations........... $ (.01) $ -- $ (.03)
Income from discontinued
operations........... $ -- $ 2.26 $ .21
Net income (loss)....... $ (.01) $ 2.26 $ .18
Weighted average shares
outstanding.......... 450,000,000 450,000,000 450,000,000
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------
1999 1998 1998 1997
------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA.................... $ (19,242) $ (5,595) $ (80,873) $ 50,005
Ratio of earnings to fixed
charges................. -- -- -- --
(Deficiency) excess of
earnings to cover fixed
charges................. $ (56,505) $ (26,064) $ (204,945) $ (25,697)
Net cash provided by (used
in) operating
activities.............. (90,225) (109,877) (363,833) 147,858
Net cash provided by
financing activities.... 587,656 222,691 890,623 225,953
Net cash used in investing
activities.............. (442,588) (112,491) (496,076) (363,494)
Capital expenditures...... 151,238 110,117 299,481 276,249
BALANCE SHEET DATA:
Working capital........... $ 501,447 $ 253,495 $ 330,533 $ 150,965
Net assets of discontinued
operations.............. -- -- -- --
Property, plant and
equipment, net.......... 781,324 503,091 695,725 407,652
Total assets.............. 2,872,921 1,557,337 2,337,546 1,506,034
Long-term debt, including
long-term debt due
within one year......... 1,144,056 128,708 624,420 126,941
Total liabilities......... 1,838,847 594,036 1,330,864 643,332
Total stockholders'
equity.................. 1,034,074 963,301 1,006,682 862,702
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA.................... $ 32,287 $ 41,331 $ 15,802
Ratio of earnings to fixed
charges................. -- 1.43 --
(Deficiency) excess of
earnings to cover fixed
charges................. $ (1,545) $ 6,856 $ (9,829)
Net cash provided by (used
in) operating
activities.............. (1,775) 34,144 41,389
Net cash provided by
financing activities.... 226,009 47,022 27,764
Net cash used in investing
activities.............. (224,186) (81,189) (58,844)
Capital expenditures...... 66,900 32,412 12,616
BALANCE SHEET DATA:
Working capital........... $ 145,865 $ 80,989 $ 64,110
Net assets of discontinued
operations.............. -- -- 743,622
Property, plant and
equipment, net.......... 174,091 98,128 70,415
Total assets.............. 721,687 413,630 1,086,329
Long-term debt, including
long-term debt due
within one year......... 2,702 189,031 164,067
Total liabilities......... 194,434 319,409 340,831
Total stockholders'
equity.................. 527,253 94,221 745,498
</TABLE>
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and related notes included in this
prospectus. You can find additional information concerning our businesses and
strategic investments and alliances in the section of this prospectus entitled
"Business."
OVERVIEW
We own, operate and are extending a nationwide fiber optic network and
provide a comprehensive array of communications products and services for
organizations of all sizes through our network unit and our solutions unit.
Through our third business unit, the strategic investments unit, we make
investments in, or own and operate, domestic and foreign businesses that create
demand for capacity on the Williams network, increase our service capabilities,
strengthen our customer relationships, develop our expertise in advanced
transmission electronics or extend our reach. We also enter into strategic
alliances with communications companies to secure long-term, high-capacity
commitments for traffic on the Williams network and to enhance our service
offerings.
In January 1995, Williams sold its network business to LDDS for
approximately $2.5 billion. The sale included Williams' nationwide fiber optic
network and the associated consumer, business and carrier customers. Williams
excluded from the sale the Retained WilTel Network, its telecommunications
equipment distribution business and Vyvx. The Retained WilTel Network, along
with Vyvx, our solutions unit and a number of acquired companies, formed the
basis for what is today our company. See Note 2 to our consolidated financial
statements for a description of acquisitions in 1996 through 1998.
On May 27, 1999, Williams contributed its international communications
assets to our company. When we talk about our company and in the presentation of
our financial information, we include the international assets which Williams
contributed to us.
In October 1997, management and ownership of the Retained WilTel Network
were transferred from our strategic investments unit to our network unit and
intercompany transfer pricing was established prospectively. In addition,
consulting, outsourcing and the management of Williams' internal telephone
operations, activities previously performed within our strategic investments
unit, were transferred to our network unit. For comparative purposes, the 1996
and 1997 consulting, outsourcing and internal telephone management activities
previously performed in our strategic investments unit that were transferred to
our network unit have been reflected in our network unit's segment results. See
Note 3 to our consolidated financial statements for more information regarding
segment disclosure.
Our consolidated financial statements and this section have been prepared
to reflect the historical consolidated financial information of our company as
if we had operated as a stand alone business throughout the periods presented.
As a result of the expansion of our fiber optic network, we expect a
significant change in our revenue mix over the next few years. In 1998, our
network unit contributed approximately 11.2% of our total consolidated revenues,
our solutions unit contributed approximately 78.9% of our total consolidated
revenues and our strategic investments unit primarily contributed the remainder.
Throughout 1999 and 2000, we expect our network unit to contribute an increasing
percentage of our total consolidated revenues and by 2001 we expect our network
unit to contribute the largest percentage of our revenues and to be the primary
source of our income from operations on a consolidated basis. In addition, as a
result of our alliances, we expect a
31
<PAGE> 36
higher concentration of revenue from SBC, Intel and Telefonos de Mexico. Over
the next few years, revenue increases in our solutions unit are expected to be
modest, with higher revenue growth expected during the same period in our
strategic investments unit.
OUR NETWORK UNIT
Our network unit's business consists of network services and dark fiber
sales. Our network services include:
- packet-based data services
- private line services, which are dedicated direct connections between
locations
- voice services
- local services
- optical wave services
- network design and operational support
These services are provided under capacity service arrangements. Capacity
service arrangements typically have terms ranging from months to many years.
Pricing is generally based on the amount of capacity provided, minutes of use,
distance of communication, jurisdiction regulating the service and other
factors, and is often based on a form of agreement which requires minimum
payments regardless of the amount of service used. These agreements are known as
take-or-pay commitments. Customers are typically billed for capacity services on
a monthly basis and the agreements generally have payment terms of 30 days. Our
network unit's revenues also include intercompany and affiliate revenues for our
management of Williams' internal telephone operations and our management of the
Retained WilTel Network.
Beginning in 1998, our revenues also included dark fiber sales. A dark
fiber sale conveys rights to use strands of fiber optic cable on the Williams
network with the purchaser providing its own optical equipment to transmit light
signals over the fiber optic strands. An agreement for a dark fiber sale
typically has a term which approximates the economic life of a fiber optic
strand, which is generally 20 to 30 years. Usually, the customer pays for the
dark fiber with a down payment due upon execution of the agreement and the
balance due upon delivery to and acceptance by the customer of the fiber.
Revenue is generally recorded at the time of delivery and acceptance of the
fiber. The customer also pays for the use of equipment space in sites along the
route of the fiber optic cable and for our network unit's maintenance of the
cable.
Our network unit's cost of sales for capacity service arrangements include
off-net capacity costs, which are costs of network capacity attributable to
using other carrier networks, local access costs, which are the costs of
connecting the Williams network to customer locations via local access
facilities, and operations and maintenance personnel costs. Construction costs
associated with the sale of dark fiber primarily include cable installation,
construction of buildings to house equipment, acquisition of rights of way and
real estate purchase costs determined on an average cost basis for the
applicable portion of the network route sold.
As a result of our expansion of the Williams network and as a result of our
alliances with SBC, Intel and Telefonos de Mexico, we expect a significant
change in our network unit's revenue mix over the next few years. In 1998,
approximately 33% of our total revenues from our network unit were generated
from sales of dark fiber. We expect that the percentage of total revenues from
our network unit attributable to dark fiber sales will increase in 1999 but will
decrease as a percentage of total revenues from our network unit after 1999. By
2001, revenues from our network unit are expected to consist primarily of voice
services and packet-based data service for communications transmissions.
32
<PAGE> 37
OUR SOLUTIONS UNIT
Our solutions unit's revenues primarily consist of sales and installation
of voice and data communications equipment and the service and maintenance of
this equipment. Revenues from voice equipment are derived from sales of private
branch exchange systems and key systems and the applications and upgrades
associated with these systems. A private branch exchange system is a switching
system of connections within an office building which allows calls from outside
the building to be routed to the individual instead of through a central number.
A key system is an on-site telephone system for smaller organizations. Like a
private branch exchange system, a key system switches calls to and from the
public network as well as within an organization. Applications and upgrades
associated with these systems include voice messaging and call centers, which
are offices with multiple persons making and answering calls and performing
functions such as taking orders, answering service- and product-related
questions and telemarketing. Revenues from data equipment consist mainly of the
sale of routers, which connect two or more data networks, switches, which are
devices that open, close, select or complete circuits, hubs, which are devices
on a data network to which other devices such as printers and computers are
connected, and other equipment that comprise corporate voice and data networks.
We expect the provision of professional services will generate an
increasing portion of our solutions unit's revenue growth. Professional services
include enterprise data network design and maintenance, call center design and
installation and Internet network design and implementation. Professional
services are typically higher margin services due to the increased complexity
and expertise required. These services are billed in one of three ways:
- as part of an equipment or network package
- separately as a contract
- separately on an hourly basis
Our solutions unit's cost of sales consists primarily of cost of goods,
labor costs for design and installation and operations and maintenance personnel
costs.
Issues relating to our solutions unit's business performance. Our
solutions unit's sales and operating losses were $1.37 billion and $59.0 million
in 1998 compared to sales and operating income of $1.19 billion and $37.1
million in 1997. In April 1997, we purchased Nortel's equipment distribution
business, which we then combined with our equipment distribution business to
create Solutions LLC. On a pro forma basis assuming the two businesses had been
combined for the entire year, sales and operating income would have been $1.44
billion and $45.6 million in 1997.
We have experienced difficulties in integrating our equipment distribution
business with Nortel's equipment distribution business and in managing the
increased complexity of our business. These difficulties include:
- inability to operate and manage our business effectively with the
multiple non-integrated management information systems which we have as a
result of the combination with Nortel as well as acquisition activity by
both us and Nortel prior to our business combination
- insufficient resources at management levels to manage the operations and
finances of the combined business
- management turnover
- sales force turnover, including the loss of approximately 200 sales
representatives, or approximately 25% of our total of approximately 850
sales representatives, in the first quarter of 1998
33
<PAGE> 38
- inability to accurately track customers' orders, billings and collections
- lack of brand recognition due to the change from the "WilTel" and
"Nortel" names
- lower customer satisfaction due to service and delivery disruptions and
billing errors
- inability to manage employee productivity and achieve operational
efficiencies
- inability to accurately track selling, general and administrative
expenses
- inability to accurately calculate sales compensation in a timely manner
- increased selling, general and administrative costs
Our solutions unit's operating results in 1998 were also negatively
affected by the expansion of our professional services business, which led to
increased administrative costs for 1998 without the corresponding revenue
benefit we would expect from this expenditure going forward.
We are taking the following initiatives to address these issues:
- implementing standard operating and financial management information
systems throughout our organization, a process which will continue
throughout 1999
- continuing to rebuild our sales force by adding approximately 200 sales
representatives in 1998, correcting sales compensation issues and
implementing sales training and development programs
- adding additional resources to address internal control issues
- realignment of our administrative and operating functions in the fourth
quarter of 1998, eliminating approximately $19 million of annualized
overhead costs
- hiring an external marketing consulting company and investing in an
advertising campaign, both of which will assist us in establishing brand
awareness and improving sales productivity
These and other initiatives began in the second quarter of 1998 and are
continuing throughout 1999. However, we expect that our financial results in
1999 will continue to be adversely affected by the difficulties outlined above.
OUR STRATEGIC INVESTMENTS UNIT
We make investments in, or own and operate, companies that create demand
for capacity on the Williams network, increase our service capabilities,
strengthen our customer relationships, develop our expertise in advanced
transmission electronics or extend our reach. We currently have significant
investments in Concentric Network Corporation, UniDial Communications and
UtiliCom Networks. Our investments in these three domestic companies represent
less than a 20% ownership, and accordingly we account for these investments
using the cost method of accounting. Under the cost method, our financial
results are not impacted by our percentage ownership interest in the results and
operations of these companies.
Williams has contributed to us its interests in communications ventures in
Brazil, Australia and Chile. Our financial results include the international
assets contributed to us. Our investment in Brazil is accounted for under the
equity method. Our investment in Australia is consolidated. We account for our
investment in Chile under the cost method. In addition, Williams has granted us
an option to acquire its entire equity and debt interests in Algar Telecom S/A,
a Brazilian telecommunications company, at net book value. We may exercise this
option at any time from January 1, 2000 to January 1, 2001 and pay the exercise
price entirely in our Class B common stock. See the section of this prospectus
entitled "Business -- Strategic investments -- International -- Algar" for more
information.
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<PAGE> 39
In addition, revenues from our strategic investments unit are derived from
Vyvx and other businesses which we own and operate. These businesses provide:
- distribution of video and audio signals of televised sports and news
events from live events to television networks
- distribution of advertisements and other media to local television
stations
Our strategic investments unit's cost of sales consists primarily of
off-net capacity costs and operations and maintenance personnel costs.
During the second quarter, management determined that the businesses that
provide audio and video conferencing services and closed-circuit video
broadcasting services for businesses were held for sale. On June 30, 1999, we
signed an agreement with Genesys, S.A. to sell our business which provides audio
and video conferencing services for approximately $39.0 million. We anticipate
that this transaction will close prior to August 31, 1999. The expected selling
price of both the sale to Genesys and of the other business less costs to sell
the assets is expected to result in a loss of approximately $26.0 million in the
second quarter of 1999. Costs associated with exit activities could result in
additional charges of up to $4.0 million.
RESULTS OF OPERATIONS
In order to meet our strategic objectives, we must increase substantially
the volume of traffic on the Williams network. As a result, we do not believe
that our financial condition or results of operations for prior years serve as a
meaningful indication of our future financial condition or results of
operations. We expect to incur substantial net operating losses for the
foreseeable future and there can be no assurance that we will be able to achieve
or sustain operating profitability in the future.
The table below summarizes our percentage of revenue by source and
operating expenses as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ---------------------------
1999 1998 1998 1997 1996
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Network.......................... 21.6% 5.5% 11.2% 3.0% 1.6%
Solutions........................ 67.2 84.4 78.9 83.3 80.6
Strategic Investments............ 13.6 13.2 12.8 15.3 18.8
Eliminations..................... (2.4) (3.1) (2.9) (1.6) (1.0)
----- ----- ----- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of sales.................... 77.6 74.4 74.7 73.1 73.3
Selling, general and
administrative................ 24.5 26.7 28.1 22.6 21.6
Provision for doubtful
accounts...................... 1.7 0.4 1.2 0.5 0.4
Depreciation and amortization.... 5.5 4.9 4.9 4.9 4.6
Other............................ -- (0.1) 2.0 3.2 0.1
----- ----- ----- ----- -----
Total operating expenses...... 109.3 106.3 110.9 104.3 100.0
----- ----- ----- ----- -----
Loss from operations............... (9.3)% (6.3)% (10.9)% (4.3)% --
===== ===== ===== ===== =====
</TABLE>
35
<PAGE> 40
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
CONSOLIDATED RESULTS
We experienced a net loss of $74.1 million for the three months ended March
31, 1999 compared to a net loss of $26.5 million for the three months ended
March 31, 1998, an increase of $47.6 million from the prior period. The increase
in net loss included an increase in losses from operations of $22.2 million, an
increase in equity losses of $8.7 million and an increase in net interest
expense of $6.4 million, somewhat offset by a change in minority interest
results of $7.3 million. Net loss was also increased by $17.6 million of
deferred taxes pursuant to our tax sharing agreement with Williams and an
increase in losses from operations. The depreciation scheduled in 1999 on the
Williams network results in a significant deferred tax expense for us in 1999
with no current benefit for the net operating losses generated, as a result of
the tax sharing agreement which we have entered into with Williams. Our
provision for taxes for the three months ended March 31, 1999 increased $18.2
million from a benefit of $0.8 million for the three months ended March 31, 1998
to a provision of $17.4 million for the three months ended March 31, 1999.
Our network unit accounted for $9.6 million of the increase in losses from
operations, our solutions unit accounted for $10.7 million of the increase in
losses from operations and our strategic investments unit accounted for $1.9
million of the increase in losses from operations. We discuss these results in
detail below by segment.
OUR NETWORK UNIT
The table below summarizes our network unit's results for the three months
ended March 31, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
-------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Dark fiber sales................... $ 51,321 $ -- $ 64,100 $ -- $ --
Leased capacity and other.......... 42,129 7,218 73,367 16,637 --
Intercompany....................... 11,633 12,070 49,759 21,159 6,145
Affiliates......................... 3,409 1,878 7,710 5,217 4,918
-------- ------- -------- -------- --------
Total revenues.................. 108,492 21,166 194,936 43,013 11,063
Operating expenses:
Cost of sales...................... 102,642 16,464 157,379 29,211 4,681
Selling, general and
administrative.................. 17,994 10,778 51,499 6,512 632
Provision for doubtful accounts.... 10 36 136 -- --
Depreciation and amortization...... 5,800 2,235 13,228 4,012 --
Other.............................. 2 -- 410 -- --
-------- ------- -------- -------- --------
Total operating expenses........ 126,448 29,513 222,652 39,735 5,313
-------- ------- -------- -------- --------
Income (loss) from operations........ $(17,956) $(8,347) $(27,716) $ 3,278 $ 5,750
======== ======= ======== ======== ========
</TABLE>
Our network unit's revenues increased $87.3 million, or 412%, to $108.5
million for the three months ended March 31, 1999 from $21.2 million for the
same period in 1998. The increase was due primarily to $51.3 million of revenues
from the sale of dark fiber and $32.0 million of revenues from services provided
to customers of the Williams network.
Our network unit's gross profit increased to $5.9 million for the three
months ended March 31, 1999 from $4.7 million for the same period in 1998 while
gross margin decreased to
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<PAGE> 41
5.4% for the three months ended March 31, 1999 from 22.2% for the three months
ended March 31, 1998. Our network unit's cost of sales increased $86.2 million,
or 524%, to $102.6 million for the three months ended March 31, 1999 from $16.4
million for the same period in 1998, due primarily to $40.8 million of
construction costs associated with the sale of dark fiber, $29.4 million of
higher off-net capacity costs incurred prior to the completion of the Williams
network and $5.9 million of higher operating and maintenance expenses.
Our network unit's selling, general and administrative expenses increased
$7.2 million, or 67%, to $18.0 million for the three months ended March 31, 1999
from $10.8 million for the same period in 1998, due primarily to an increase in
the number of employees and the expansion of the infrastructure to support the
Williams network.
Our network unit's depreciation and amortization increased $3.6 million, or
160%, to $5.8 million for the three months ended March 31, 1999 from $2.2
million for the same period in 1998, reflecting the impact of completing the
construction of various segments of the Williams network.
OUR SOLUTIONS UNIT
The table below summarizes our solutions unit's results for the three
months ended March 31, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1999 1998 1998 1997 1996
-------- -------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
New systems and upgrades....... $193,610 $179,587 $ 791,518 $ 674,604 $306,110
Maintenance and customer
service orders.............. 137,721 145,254 556,392 508,319 251,221
Other.......................... 4,717 1,835 16,029 5,363 9,379
Affiliates..................... 1,244 770 3,465 1,512 1,362
-------- -------- ---------- ---------- --------
Total revenues.............. 337,292 327,446 1,367,404 1,189,798 568,072
Operating expenses:
Cost of sales.................. 246,769 241,365 1,009,475 881,112 435,490
Selling, general and
administrative.............. 82,551 76,631 355,014 234,615 105,891
Provision for doubtful
accounts.................... 8,079 778 19,231 5,622 1,526
Depreciation and
amortization................ 10,571 9,018 36,637 30,142 16,023
Other.......................... 263 (132) 6,013 1,255 255
-------- -------- ---------- ---------- --------
Total operating expenses.... 348,233 327,660 1,426,370 1,152,746 559,185
-------- -------- ---------- ---------- --------
Income (loss) from operations.... $(10,941) $ (214) $ (58,966) $ 37,052 $ 8,887
======== ======== ========== ========== ========
</TABLE>
Our solutions unit's revenues increased $9.8 million, or 3%, to $337.3
million for the three months ended March 31, 1999 from $327.5 million for the
same period in 1998. Increases in new systems and upgrades as well as increases
in professional services were offset by decreases in maintenance and customer
service orders. The increase in professional services is primarily attributable
to the October 1998 acquisition of Computer Networking Group, Inc.
Our solutions unit's gross profit increased to $90.5 million for the three
months ended March 31, 1999 from $86.1 million for the same period in 1998,
while gross margin increased to 26.8% for the three months ended March 31, 1999
from 26.3% for the same period in 1998. Our solutions unit's cost of sales
increased $5.4 million, or 2.2%, to $246.8 million for the three
37
<PAGE> 42
months ended March 31, 1999 from $241.4 million for the same period in 1998, due
primarily to the increased revenue.
Our solutions unit's selling, general and administrative expenses increased
$5.9 million, or 8%, to $82.6 million for the three months ended March 31, 1999
from $76.6 million for the same period in 1998. Cost reduction initiatives
implemented in the fourth quarter of 1998 were offset by higher costs
attributable to the CNG acquisition and expansion of the professional services
business.
Our solutions unit's provision for doubtful accounts increased $7.3 million
to $8.1 million for the three months ended March 31, 1999 from $0.8 million for
the same period in 1998. The increase in the provision reflects adjustments to
our reserves based on unresolved billing and collection issues.
Our solutions unit's depreciation and amortization increased $1.6 million,
or 17%, to $10.6 million for the three months ended March 31, 1999 from $9.0
million for the same period in 1998, due primarily to the CNG acquisition and
depreciation related to systems infrastructure.
OUR STRATEGIC INVESTMENTS UNIT
The table below summarizes our strategic investments unit's results for the
three months ended March 31, 1999 and 1998 and for the last three fiscal years:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1999 1998 1998 1997 1996
-------- -------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Vyvx............................ $ 39,287 $ 40,130 $ 161,201 $ 162,009 $ 99,974
PowerTel........................ 11,542 -- 11,248 -- --
Other........................... 17,315 11,217 48,961 55,957 32,503
-------- -------- --------- --------- --------
Total revenues............... 68,144 51,347 221,410 217,966 132,477
Operating expenses:
Cost of sales................... 52,103 42,911 178,010 155,873 83,476
Selling, general and
administrative............... 22,373 16,262 80,560 82,386 45,961
Provision for doubtful
accounts..................... 348 669 2,224 2,215 1,168
Depreciation and amortization... 11,207 7,742 34,516 36,509 16,355
Other........................... 36 (208) 27,822 44,014 245
-------- -------- --------- --------- --------
Total operating expenses..... 86,067 67,376 323,132 320,997 147,205
-------- -------- --------- --------- --------
Loss from operations.............. $(17,923) $(16,029) $(101,722) $(103,031) $(14,728)
======== ======== ========= ========= ========
ATL and other equity losses....... $(10,159) $ (1,479) $ (7,908) $ (2,383) $ (1,601)
======== ======== ========= ========= ========
</TABLE>
Our strategic investments unit's revenues increased $16.8 million, or 33%,
to $68.1 million for the three months ended March 31, 1999 from $51.3 million
for the same period in 1998. The increase is primarily attributable to $11.5
million in international activity as a result of the August 1998 acquisition of
PowerTel and $6.1 million in increases primarily related to audio and video
conferencing and closed-circuit video broadcasting services for businesses.
Our strategic investments unit's gross profit increased to $16.0 million
for the three months ended March 31, 1999 from $8.4 million for the same period
in 1998, while gross margin increased to 23.5% for the three months ended March
31, 1999 from 16.4% for the same period in 1998. Our strategic investments
unit's cost of sales increased $9.2 million, or 21%, to
38
<PAGE> 43
$52.1 million for the three months ended March 31, 1999 from $42.9 million for
the same period in 1998, primarily due to $11.7 million in increased costs
attributable to the August 1998 acquisition of PowerTel.
Our strategic investments unit's selling, general and administrative
expenses increased $6.1 million, or 38%, to $22.4 million for the three months
ended March 31, 1999 from $16.3 million for the same period in 1998, primarily
as a result of the $5.3 million impact of the August 1998 acquisition of
PowerTel.
Our strategic investments unit's equity losses increased to $10.2 million
for the three months ended March 31, 1999 from $1.5 million for the same period
in 1998 due primarily to the March 1998 investment in ATL-Algar Telecom Leste
S.A. ATL had significant pre-operational losses in the construction of a digital
cellular network in 1998 and the three months ended March 31, 1999.
CONSOLIDATED NON-OPERATING COSTS
Our net interest expenses for the three months ended March 31, 1999
increased $6.4 million from the same period of the prior year as interest
expense incurred to finance operations and capital expenditures exceeded amounts
capitalized for the quarter by $6.4 million. Our minority interest (income) loss
is attributable to Nortel's 30% ownership of Solutions LLC as well as the other
stockholders' 78% ownership of PowerTel. The change in minority interest
resulted in an increase in income for the three months ended March 31, 1999 of
$5.8 million compared to a reduction in income for the same period in 1998 of
$1.5 million. The 1999 amount attributable to Nortel is $2.7 million and the
1999 amount attributable to PowerTel is $3.1 million. In 1998, the minority
interest amount was all attributable to Nortel.
For the three months ended March 31, 1999, we recorded a tax provision of
$17.4 million, compared to a tax benefit of $0.8 million for the same period in
1998. The increase in our tax provision is primarily due to an increase in our
deferred taxes pursuant to our tax sharing agreement with Williams. The
depreciation of the Williams network that has begun resulted in a significant
deferred tax expense for us in 1999 with no current benefit for the net
operating losses generated under the tax sharing agreement. Under our tax
sharing agreement with Williams, after the equity offering we will generally
receive the benefit of net operating losses only while we remain part of the
Williams consolidated tax group and only to the extent we would be able to
utilize them if we filed separate income tax returns.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
CONSOLIDATED RESULTS
We experienced a net loss of $180.9 million in 1998 compared to a net loss
of $35.8 million in 1997, an increase of $145.1 million from 1997. The increase
in our net loss is primarily attributable to an increase in losses from
operations of $125.7 million, which we discuss in detail below by segment. The
increase in net loss is offset somewhat by a change in minority interest results
of $29.2 million and a tax benefit of $5.1 million compared with a tax expense
of $2.0 million in 1997. Our 1997 results were also affected by the occurrence
of a $44.5 million non-recurring gain on the sale of a 30% interest in Solutions
LLC to Nortel.
Our network unit accounted for $31.0 million of the increase in losses from
operations and our solutions unit accounted for $96.0 million of the increase in
losses from operations, partially offset by a $1.3 million decrease in losses
from operations in our strategic investments unit.
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<PAGE> 44
OUR NETWORK UNIT
Our network unit's revenues increased $151.9 million, or 353%, to $194.9
million in 1998 from $43.0 million in 1997. The increase in 1998 was due
primarily to $64.1 million of revenues from the sale of dark fiber, $49.5
million of revenues from services provided to new long-term customers of the
Williams network and $28.6 million higher intercompany revenues following the
transfer of the Retained WilTel Network from Applications to our network unit in
October 1997 and the establishment of intercompany transfer pricing.
Our network unit's gross profit increased to $37.6 million in 1998 from
$13.8 million in 1997, while gross margin decreased to 19.2% in 1998 from 32.1%
in 1997. Our network unit's cost of sales increased $128.2 million, or 439%, to
$157.4 million in 1998 from $29.2 million in 1997, due primarily to $38.5
million of construction costs associated with the sale of dark fiber, $54.8
million of off-net capacity costs incurred prior to completion of the Williams
network and $17.1 million of higher operating and maintenance expenses. Costs
associated with higher intercompany revenues primarily account for the remainder
of the increased cost.
Our network unit's selling, general and administrative expenses increased
$45.0 million, or 692%, to $51.5 million in 1998 from $6.5 million in 1997, due
primarily to an increase in the number of employees and the expansion of the
infrastructure to support the Williams network, including $7.7 million of
increased information systems costs and $8.0 million for a new national
advertising campaign.
Our network unit's depreciation and amortization increased $9.2 million, or
230%, to $13.2 million in 1998 from $4.0 million in 1997, due to the transfer of
the Retained WilTel Network from our strategic investments unit to our network
unit.
OUR SOLUTIONS UNIT
In 1997 and 1998, several integration issues relating to the combination of
Nortel's equipment distribution business with ours had an adverse impact on our
solutions unit's operating results. Although these issues began in 1997, our
financial results were not materially adversely impacted until 1998. See the
section above entitled "-- Overview -- Our solutions unit -- Issues relating to
our solutions unit's business performance." Write-offs of previously capitalized
software costs in favor of new systems, end of the year severance plans and the
modification of an employee benefit plan also had an adverse impact on the
operating results. Consequently, our solutions unit's total segment operating
results declined from operating income of $37.1 million in 1997 to an operating
loss of $59.0 million in 1998.
Our solutions unit's revenues increased $177.6 million, or 15%, to $1.37
billion in 1998 from $1.19 billion in 1997, due primarily to an increase of
$195.5 million arising from the additional four months of combined operations
with Nortel's equipment distribution business in 1998 as compared to 1997. While
maintenance contract revenues increased in 1998, the increase was offset by a
reduction in new system sales and fewer customer service orders due, in part, to
competitive pressures and the integration issues discussed above. See the
section above entitled "-- Overview -- Our solutions unit -- Issues relating to
our solutions unit's business performance."
Our solutions unit's gross profit increased to $357.9 million in 1998 from
$308.7 million in 1997, while gross margin increased to 26.2% in 1998 from 25.9%
in 1997. Our solutions unit's cost of sales increased $128.4 million, or 15%, to
$1.01 billion in 1998 from $881.1 million in 1997, due primarily to an increase
of $121.4 million arising from an additional four months of combined operations
with Nortel in 1998 as compared to 1997. $49.4 million of the increased costs
are attributable to direct costs associated with new systems and upgrades
revenues and $43.5 million of the increased costs are direct costs associated
with maintenance and customer
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<PAGE> 45
service orders revenues. $31.6 million of the increased costs are attributable
to higher indirect costs which are primarily attributable to maintenance and
customer service orders revenues.
Our solutions unit's selling, general and administrative expenses increased
$120.4 million, or 51%, to $355.0 million in 1998 from $234.6 million in 1997.
The increase was due to an increase of $48.4 million arising from an additional
four months of combined operations with Nortel. Also contributing to the
increase was $23.3 million of increased information systems costs associated
with infrastructure expansion and enhancement and the continued costs of
maintaining multiple systems while common systems were being developed. In
addition, $36.0 million of increased costs was due to additions to sales
personnel and support staff and higher sales commission rates than anticipated.
Selling, general and administrative costs in 1998 also included fourth quarter
charges of $8.7 million. The charges consisted of $5.8 million related to the
modification of our solutions unit's employee benefits program to increase the
number of vested days in the new paid time off policy, including a change with
regard to sick pay. The remaining charge of $2.9 million was for the severance
of 133 employees who were terminated in December 1998 and to whom we paid
severance benefits during January 1999. Additionally, an expansion of our
professional services business increased administrative expenses.
Provision for doubtful accounts increased $13.6 million, or 242%, to $19.2
million in 1998 from $5.6 million in 1997. This increase was due to our
inability to accurately bill our customers and to collect payment from our
customers in a timely manner.
Our solutions unit's depreciation and amortization increased $6.5 million,
or 22%, to $36.6 million in 1998 from $30.1 million in 1997, due primarily to an
increase of $5.4 million arising from an additional four months of combined
operations with Nortel in 1998 as compared to 1997. The combination with Nortel
resulted in additional goodwill of approximately $180.0 million which is being
amortized over 25 years, resulting in annual amortization expense of
approximately $7.2 million.
Our solutions unit's other operating expense increased $4.7 million, or
379%, to $6.0 million in 1998 from $1.3 million in 1997, due primarily to a
fourth quarter non-cash charge of $5.6 million related to the abandonment of
capitalized software costs in favor of new systems.
OUR STRATEGIC INVESTMENTS UNIT
Our strategic investments unit's revenues increased $3.4 million, or 2%, to
$221.4 million in 1998 from $218.0 million in 1997, due primarily to the $11.2
million impact of our investment in PowerTel and a $9.1 million increase from
audio and video conferencing and closed-circuit video broadcasting services for
businesses. This was partially offset by the $13.7 million impact of exiting our
learning content business. In late 1997, we decided to sell our learning content
business. During 1998, a substantial portion of the learning content business
was sold at its approximate carrying value.
PowerTel Limited is a public company in Australia which plans to build, own
and operate communications networks serving the cities of Brisbane, Melbourne
and Sydney and which plans to provide local services in the central business
districts of these three cities. Our total investment represents a 36% economic
interest in PowerTel, which will increase to 45% after we make all of our
remaining required cash contributions of $39 million. We also hold options
which, if exercised, would increase our interest by 4%. PowerTel's revenues for
the period from Williams' investment on August 14, 1998 through December 31,
1998 consisted of fixed telephone line revenues of $7.3 million and cellular
phone revenues of $3.9 million. Since PowerTel is accounted for under the
principles of consolidation despite our less than 50%
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<PAGE> 46
ownership, our consolidated financial statements reflect revenues of $11.2
million and operating expenses of $14.5 million.
Our strategic investments unit's gross profit decreased to $43.4 million in
1998 from $62.1 million in 1997, while gross margin decreased to 19.6% in 1998
from 28.5% in 1997. Our strategic investments unit's cost of sales increased
$22.1 million, or 14%, to $178.0 million in 1998 from $155.9 million in 1997,
due primarily to $15.0 million of costs relating to the existence of
intercompany transfer pricing following the transfer of the Retained WilTel
Network to our network unit in October 1997 and $9.9 million due to our
investment in PowerTel. Cost of sales of PowerTel included $6.8 million related
to fixed telephone line revenues and $3.1 million related to cellular telephone
revenues. Other changes in our strategic investments unit's cost of sales
included the $6.7 million impact of increased activity in audio and video
conferencing and closed-circuit video broadcasting services, partially offset by
$5.6 million in lower costs as a result of our exiting our learning content
business.
Our strategic investments unit's selling, general and administrative
expenses decreased $1.8 million, or 2%, to $80.6 million in 1998 from $82.4
million in 1997, due primarily to our exiting the learning content business,
partially offset by $3.7 million in expenses related to PowerTel.
Our strategic investments unit's depreciation and amortization decreased
$2.0 million, or 5%, to $34.5 million in 1998 from $36.5 million in 1997, due
primarily to the absence of depreciation and amortization of $3.9 million
associated with our exiting the learning content business. Decreases in
depreciation associated with the transfer of the Retained WilTel Network to our
network unit in October 1997 were offset by increases related to new video and
teleport equipment. Depreciation and amortization related to PowerTel totaled
$0.9 million.
Our strategic investments unit's other operating expense decreased $16.2
million, or 37%, to $27.8 million in 1998 from $44.0 million in 1997. The 1998
amount included a $23.2 million write-down related to our abandonment of a
venture involved in the technology and transmission of business information. The
write-down occurred as a result of our decision to exit the venture and not to
make further investments in the venture. The write-down was recorded in the
third quarter and we abandoned the venture during the fourth quarter. The
write-down primarily consisted of $17.0 million from the impairment of the total
carrying value of the investment and $5.0 million from the recognition of
contractual obligations that continued after the abandonment. During the fourth
quarter of 1998, $2.0 million of these contractual obligations were paid. Other
operating expenses in 1997 included charges totaling $42.0 million related to
our decision and commitment to sell the learning content business ($22.7
million) and the write-down of assets and development costs. The write-down of
assets and development costs was a result of management's evaluation of certain
business activities because of indications that their carrying values might not
be recoverable.
ATL-Algar Telecom Leste S.A. is a company formed in March 1998 to acquire a
concession for cellular licenses in Brazil in the states of Rio de Janeiro and
Espirito Santo. As of March 31, 1999, following the contribution from Williams,
our investment in ATL totaled $415 million, representing a 55% economic
interest, an option for an additional 10% economic interest, a 19% voting
interest and an option for an additional 30% voting interest. On March 25, 1999,
Williams pledged 49% of its common and all of its preferred stock as collateral
for a U.S. dollar-denominated $521 million loan from Ericsson Project Finance AB
to ATL. The loan matures on March 25, 2002. The strategic investments unit had
1998 equity losses in ATL of $4.2 million. ATL incurred significant
pre-operational losses in the construction of a digital cellular network in
1998.
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CONSOLIDATED NON-OPERATING COSTS
Our net interest expense increased $6.5 million to $7.5 million in 1998
from $0.9 million in 1997 as a result of our increased borrowings in 1998
compared to 1997, and was offset somewhat by increased capitalization of
interest related to assets under construction. Our cash from financing
activities increased $664.7 million, or 294%, to $890.6 million in 1998 from
$225.9 million in 1997. Most of our 1998 funding was provided by borrowings from
Williams, while most of our 1997 funding was provided by capital contributions
from Williams.
Our minority interest (income) loss is attributable to Nortel's 30%
ownership of Solutions LLC as well as the other stockholders' 78% ownership of
PowerTel. The change in minority interest resulted in an increase in income in
1998 of $15.6 million compared to a reduction of income in 1997 of $13.5
million. This change of $29.1 million was due primarily to operating losses
attributable to our solutions unit in 1998 as compared to operating profit in
1997. In 1997, we recognized a $44.5 million gain on the sale of a 30% ownership
in Solutions LLC to Nortel based on the excess of the fair value over the net
book value of the assets conveyed to Nortel.
In 1998, we recorded a tax benefit of $5.1 million compared to a tax
provision of $2.0 million in 1997. The notes to our consolidated financial
statements include a reconciliation of the expected benefit for income taxes at
the federal statutory rate to the actual provision or benefit. In 1998, the
expected benefit was largely offset by unused operating losses.
Under our tax sharing agreement with Williams, after the equity offering we
will generally receive the benefit of net operating losses only while we remain
part of Williams' consolidated tax group and only to the extent we would be able
to utilize them if we filed separate income tax returns. If we had filed
separate federal income tax returns for 1997 and 1998, the provision (benefit)
for income taxes would generally be unchanged for 1997, and for 1998 the
deferred federal income tax benefit would have been increased by approximately
$5.6 million. This amount reflects the benefit of a net deferred tax asset for
federal net operating loss carryforwards to the extent of the existing net
deferred tax liability that would have been reflected by us on a separate filing
basis.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
CONSOLIDATED RESULTS
We incurred a net loss of $35.8 million in 1997 compared to a net loss of
$3.5 million in 1996, representing an increase in net loss of $32.3 million, or
920%, from the prior year. The increase in net loss was due to increased losses
from operations of $62.6 million and the recording of minority interest expense
of $13.5 million attributable to Nortel's 30% share of the 1997 results of
Solutions LLC. These results were offset by lower net interest expense of $16.4
million and the recognition of a $44.5 million gain on the sale of a 30%
interest in Solutions LLC to Nortel. Our 1996 results were affected by a
non-recurring gain on the sale of communications assets of $15.7 million.
Our network unit accounted for $2.5 million of the increase in losses from
operations. These losses were offset somewhat by an increase in our solutions
unit's operating income of $28.2 million. Our strategic investments unit
accounted for $88.3 million of the increase in losses from operations.
OUR NETWORK UNIT
Our network unit's revenues increased $31.9 million, or 289%, to $43.0
million in 1997 from $11.1 million in 1996, due primarily to $13.6 million in
consulting and outsourcing revenues attributable to the March 1997 acquisition
of Critical Technologies, Inc., a company which
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designs and manages outsourced communications networks. The increase in revenues
was also primarily due to an increase of $15.0 million in intercompany revenues,
including revenues from the transfer of the Retained WilTel Network from our
strategic investments unit to our network unit in October 1997.
Our network unit's gross profit improved to $13.8 million in 1997 from $6.4
million in 1996, while gross margin percentages declined to 32.1% in 1997 from
57.7% in 1996. Our network unit's cost of sales increased $24.5 million, or
524%, to $29.2 million in 1997 from $4.7 million in 1996, due primarily to the
$15.0 million impact of the transfer of the Retained WilTel Network from our
strategic investments unit to our network unit and the $8.0 million impact of
the acquisition of Critical Technologies.
Our network unit's selling, general and administrative expenses increased
$5.9 million to $6.5 million in 1997 from $0.6 million in 1996 as a result of
the acquisition of Critical Technologies.
Our network unit's depreciation and amortization was none in 1996 and
increased to $4.0 million in 1997 as a result of the transfer of the Retained
WilTel Network from our strategic investments unit to our network unit and the
acquisition of Critical Technologies.
OUR SOLUTIONS UNIT
Our solutions unit's revenues increased $621.7 million, or 109%, to $1.19
billion in 1997 from $568.1 million in 1996, due primarily to acquisitions which
contributed revenues of approximately $556.0 million, including $535.6 million
from the April 1997 combination of Nortel's equipment distribution business with
ours.
During 1997, our solutions unit modified its basic contract structure for
new systems and upgrades to separately state prices for the equipment and
services portions of a contract. As a result of this contract structure,
revenues related to the equipment portion of new systems and upgrade contracts
are recognized when the equipment is received by, and title passes to, the
customer. Revenues related to the services portion of the new systems and
upgrades contracts continue to be recognized based on the relationship of the
accumulated service costs incurred to the estimated total service costs upon
completion. This new contract structure increased revenues by $38.0 million and
operating profit by $6.7 million in 1997. Increased business activity resulted
in an $81.0 million increase in new system sales, partially offset by a $46.0
million decrease in system upgrade revenues.
Our solutions unit's gross profit increased to $308.7 million in 1997 from
$132.6 million in 1996, while gross margin percentages increased to 25.9% in
1997 from 23.3% in 1996. Our solutions unit's cost of sales increased $445.6
million, or 102%, to $881.1 million in 1997 from $435.5 million in 1996. The
increase was due primarily to the $393.0 million impact of the combination with
Nortel. The remaining increase was attributable to the modification of the
contract structure discussed above, resulting in increased costs of $31.3
million, and to increased business activity.
Our solutions unit's selling, general and administrative expenses increased
$128.7 million, or 122%, to $234.6 million in 1997 from $105.9 million in 1996,
due primarily to the approximately $109.3 million impact of the combination with
Nortel with the remaining costs attributable to expanding the infrastructure and
sales support for anticipated future growth.
Our solutions unit's depreciation and amortization increased $14.1 million,
or 88%, to $30.1 million in 1997 from $16.0 million in 1996, due primarily to
the combination with Nortel.
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OUR STRATEGIC INVESTMENTS UNIT
Our strategic investments unit's revenues increased $85.5 million, or 65%,
to $218.0 million in 1997 from $132.5 million in 1996, due primarily to
acquisitions which contributed revenues of $80.6 million. Our strategic
investments unit's revenues in 1997 also included revenues from our learning
content business for which, in late 1997, we developed a plan for disposal and
defined as an asset held for sale. As detailed in our consolidated financial
statements, a series of acquisitions were completed in 1996 and 1997 which
expanded our strategic investments unit's product offerings to include satellite
links, audio and video conferencing, closed-circuit video broadcasting for
businesses and advertising distribution.
Our strategic investments unit's gross profit increased to $62.1 million in
1997 from $49.0 million in 1996, while gross margins decreased to 28.5% in 1997
from 37.0% in 1996. Cost of sales increased $72.4 million, or 87%, to $155.9
million in 1997 from $83.5 million in 1996, due primarily to the $68.0 million
impact of the acquired operations.
Our strategic investments unit's selling, general and administrative
expenses increased $36.4 million, or 79%, to $82.4 million in 1997 from $46.0
million in 1996, primarily attributable to the acquired operations.
Our strategic investments unit's depreciation and amortization increased
$20.1 million, or 123%, to $36.5 million in 1997 from $16.4 million in 1996,
primarily attributable to the acquired operations.
Our strategic investments unit's other expense increased $43.8 million to
$44.0 million from $0.2 million in 1996, due primarily to charges totaling $42.0
million in 1997 related to our decision and commitment to sell our learning
content business, resulting in a $22.7 million charge, and the write-down of
assets and development costs. The $22.7 million charge consisted of a $21.0
million impairment of the assets to fair value less cost to sell and recognition
of $1.7 million in exit costs, which primarily consisted of employee-related
costs and contractual obligations. Fair value was based on management's estimate
of the expected net proceeds to be received. The write-down of assets and
development costs was a result of management's evaluation of certain of our
strategic investments unit's business activities because of indications that
their carrying values might not be recoverable. This resulted in impairments of
$17.0 million based on management's estimate as to the ultimate recoverable
value of these business activities.
CONSOLIDATED NON-OPERATING COSTS
Our net interest expense decreased $16.4 million to $0.9 million in 1997
from $17.4 million in 1996 as a result of our funding needs and resources in
1997 as compared to 1996 and as a result of the capitalization of interest
beginning in 1997 for network construction projects. Our cash from financing
activities decreased $0.1 million to $225.9 million in 1997 from $226.0 million
in 1996. Most of our 1997 funding was provided by capital contributions from
Williams, while in 1996 funding included both borrowings and capital
contributions from Williams.
Our minority interest expense in 1997 is attributable to Nortel's 30%
ownership of Solutions LLC and resulted in expense in 1997 of $13.5 million
compared to none in 1996. This change was due to the April 1997 combination with
Nortel.
We recognized a $44.5 million gain in 1997 on the sale of the 30% ownership
interest in Solutions LLC to Nortel based on the excess of the fair value over
the net book value of the assets conveyed to Nortel. In 1996, we recorded a gain
of $15.7 million from the sale of communication assets for $38.0 million.
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In 1997, we recorded a tax expense of $2.0 million compared to a tax
expense of $0.4 million in 1996. The notes to our consolidated financial
statements include a reconciliation of the expected benefit to the actual
provision or benefit. The 1997 and 1996 expenses reflect our inability to
utilize net operating losses under our tax sharing agreement with Williams.
LIQUIDITY AND CAPITAL RESOURCES
Our operations currently do not provide positive cash flow. Accordingly, we
have funded capital expenditures, acquisitions and other cash needs through a
combination of borrowings and capital contributions from Williams as well as
external borrowings when required. After the completion of the offerings, we
plan on financing future cash outlays through internally generated and external
funds without relying on cash advances, credit support or contributions from
Williams. Some amounts denominated in dollars represent amounts actually
denominated in foreign currencies. These amounts have been converted from these
currencies as of recent dates.
HISTORICAL FUNDING SOURCES AND USES
Total cash expended from January 1, 1996 to March 31, 1999 to fund capital
expenditures and investments, pay debt and make acquisitions was approximately
$1.84 billion. Of this amount, approximately $795.6 million was expended for
acquisitions and approximately $793.9 million was used for capital expenditures,
of which approximately $747.0 million was spent to construct and light the
Williams network. In addition, total cash used in operating activities was
approximately $308.0 million during the same period.
Cash provided during this same period by loans and capital contributions
from Williams totaled approximately $1.78 billion, of which approximately $380
million was for the buildout of the Williams network. Total cash provided by
external borrowings was approximately $466.5 million. As of March 31, 1999,
working capital was $501.4 million. At December 31, 1998, 1997 and 1996, working
capital was approximately $330.5 million, $151.0 million and $145.9 million,
respectively.
Beginning in July 1997, our solutions unit became a borrower under the
revolving credit facility among Williams, other Williams subsidiaries and
certain banks. Our solutions unit had a commitment of $300 million under this
credit facility. In January 1999, we also became a borrower under this credit
facility and agreed that our borrowings, including those of our solutions unit,
under this facility would not exceed $400 million. Our borrowings under this
facility other than borrowings by our solutions unit are guaranteed by Williams.
As of March 31, 1999, there were $315 million in borrowings outstanding. As of
the date of this prospectus, there are no borrowings outstanding under this
facility.
During 1998, we entered into an asset defeasance program in the form of an
operating lease agreement covering a portion of the Williams network with a
group of financial institutions. As of June 15, 1999, we had spent approximately
$430 million in cash under this program, and we anticipate that at the closing
of the offerings we will have spent approximately $500 million under this
program. Our obligations under the lease are partially guaranteed by Williams.
For more information regarding our obligations under this program, see the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements -- Asset defeasance program."
In 1999, we accelerated the schedule for completion of the Williams
network. In order to provide for additional financing needed prior to completion
of the offerings, we entered into a $1.4 billion interim loan facility on April
16, 1999. Our obligations under the interim loan facility are guaranteed by
Williams. The facility terminates on September 30, 1999. As of the date of this
prospectus, approximately $500 million in principal was outstanding under the
interim facility.
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We intend to replace the current revolving credit facility and interim loan
facility after the completion of the offerings, but on or before September 1,
1999, with a $1.0 billion permanent credit facility for our subsidiary, Williams
Communications, Inc. This permanent credit facility will not be guaranteed by
Williams. For more information regarding the permanent credit facility, see
"Description of Indebtedness and Other Financing Arrangements -- Permanent
credit facility."
Upon the completion of the offerings and the recharacterization of $200
million from paid in capital to amounts due to Williams, we estimate we will
have approximately $1.0 billion in borrowings from Williams. We will pay a
floating interest rate on borrowings from Williams equal to LIBOR plus a margin
based on our credit rating. See the section of the prospectus entitled
"Capitalization."
ANTICIPATED FUNDING SOURCES AND USES
We anticipate total cash expended from March 31, 1999 through December 31,
2000 to approximate $4.2 billion as set forth in the table below:
PROJECTED SOURCES AND USES*
(IN MILLIONS)
<TABLE>
<S> <C>
Sources:
Net proceeds from the equity offering....................... $ 607
Net proceeds from the concurrent investments**.............. 725
Net proceeds from the notes offering........................ 1,268
Term loan borrowings........................................ 500
Revolving credit facility borrowings........................ 320
Asset defeasance program.................................... 380
Inventory and asset sales................................... 360
------
4,160
======
Uses:
Capital expenditures:
Network................................................... $3,440
Other business units...................................... 300
------
Total capital expenditures....................... 3,740
Revolving credit facility................................... 315
Intercompany debt........................................... 25
Other....................................................... 80
------
4,160
======
</TABLE>
- ---------------
* This table excludes borrowings and repayments under the interim loan facility
entered into on April 16, 1999.
** Based on $425/500 million from SBC, $100/25 million from Telefonos de Mexico
and $200 million from Intel.
Some of our funding sources include the following:
- We expect to receive approximately $725 million from the concurrent
investments. For more detail regarding the concurrent investments, see
the section of this prospectus entitled "Business -- Strategic
alliances."
- Concurrently with the equity offering, we expect to issue in the notes
offering approximately $1.3 billion principal amount of publicly traded
debt securities.
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- We intend to enter into a new $1.0 billion permanent credit facility
which we will use to replace the current revolving credit facility and
the $1.4 billion interim loan facility. We will make new borrowings under
this new permanent credit facility as and when needed.
- During 1998, we entered into an asset defeasance program in the form of
an operating lease agreement covering a portion of the Williams network.
The total estimated cost of the network assets to be covered by this
lease agreement is $750 million. The lease term will include an interim
term, during which the covered network assets will be constructed, which
is anticipated to end no later than December 31, 1999, and a base term.
The interim and base terms are expected to total five years, and if
renewed, could total seven years. As of March 31, 1999, $382 million in
construction costs had been incurred and the remaining capacity under
this program was $368 million. At June 15, 1999, approximately $430
million in construction costs had been incurred and the remaining
capacity under this program was $320 million.
- Asset sales consist primarily of proceeds from the sale of dark fiber.
Our primary anticipated cash need is funding capital expenditures for our
network unit for construction costs, including the purchase and deployment of
fiber optic cable, equipment costs and other costs including capitalized
interest. We spent approximately $1.4 billion under our network capital plan
through June 30, 1999, of which $747 million had been spent through March 31,
1999.
A significant portion of our equipment costs will be for advanced
electronics transmitting light pulses over the fibers carrying communications
signals, voice switches for voice services and routers for Internet services.
This equipment will support increased capacity on the Williams network and
additional network services particularly in the areas of data and voice.
Our network's construction contracts typically cover all or a portion of a
cable construction project. While our network may use the same contractors on
different projects, it has no long-term construction agreements. Our network has
long-term equipment purchase contracts with Nortel and Ascend Communications,
Inc.
CAPITAL COMMITMENTS
We have the following other capital commitments which we plan to fund with
borrowings from our credit facilities if operating cash flows are not
sufficient:
In addition to the network unit's capital plan described above, we have an
approximately $316 million commitment to acquire wireless capacity under our
agreement with WinStar described in "Business -- Strategic
alliances -- WinStar," payable over the next four years.
We have committed approximately $50 million for our solutions unit to
complete its transition to common information systems during 1999.
We also have commitments to purchase Nortel's interest in our solutions
unit under certain circumstances. After 1999, Nortel may require us to purchase
up to one-third of its 30% interest in our solutions unit at the then-fair
market value. The fair market value would be determined at the time of the
purchase and would be dependent on a number of factors, some of which are
subjective. Nortel may also require us to purchase its entire interest in our
solutions unit at market value in the event of a change in control of either us
or Nortel or in the event our solutions unit's purchases of Nortel equipment do
not meet certain targets. To date our solutions unit has met the equipment
purchase targets. If operating cash flows are not sufficient or if we are not
able to borrow sufficient funds for the purchase under our bank facilities, we
would need to obtain additional funding from other sources, including equity
sales.
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With respect to our strategic investments unit, we expect to invest an
additional $39 million in PowerTel over the next year. We are also committed to
making additional capital contributions to ATL to the extent necessary for it to
maintain a 70-to-30 debt to contributed capital ratio. Our ownership interests
could be diluted if we fail to make required capital contributions.
In addition, the companies in which we have made strategic investments have
their own funding requirements. We expect that these companies will obtain
required funding from third parties to the extent sufficient funds are not
generated from internal operations. To the extent internally-generated funds or
third party borrowings are unavailable, we may invest additional funds or lend
additional money to these companies in order for them to meet their capital
needs. Anticipated funding needs of these companies include:
- approximately $641 million for ATL over the next three years to pay
amounts required under its Brazilian cellular license bid
- approximately $186 million for MetroCom over the next three years to
construct a network to provide communications services in the Santiago,
Chile metropolitan area
- approximately $30 million for PowerTel over the next three years to
construct communications networks to serve Brisbane, Melbourne and
Sydney, Australia
If ATL cannot meet its cellular license payments, it could lose its
licenses. Also, our ownership interest in ATL has been pledged to secure a loan
made to ATL and in the event of a loan default, we could lose our ownership
interests.
Our debt agreements will contain restrictive covenants and require us to
meet certain financial ratios and tests. These agreements will restrict our
ability to borrow additional money, pay dividends or other distributions to
stockholders, make investments, create liens on our assets and sell assets.
We believe that the net proceeds from the offerings, the amount funded by
Williams, our borrowings under our bank facilities, the funds available under
the asset defeasance program and proceeds from the sales of inventory and assets
will be sufficient to satisfy our anticipated cash requirements at least through
the end of 2000. However, we cannot assure you that our capital expenditures
will not exceed the amounts we have estimated or that we will be able to obtain
the required funds on terms acceptable to us, either from the sources described
above or other sources. If we are unable to obtain the necessary funds, we may
be required to scale back or defer our planned capital expenditures and,
depending on the cash flow from our then-existing businesses, reduce the scope
of our planned operations. In addition, our ability to expand our business and
enter into new customer relationships may depend on our ability to obtain
additional financing for these projects.
For more detail regarding net proceeds from the offerings, the amount
funded by Williams, our borrowings under our bank facilities and the funds
available under the asset defeasance program that will continue in place
following the completion of the offerings, see the section of this prospectus
entitled "Description of Indebtedness and Other Financing Arrangements."
INFLATION
Inflation has not significantly affected our operations during the past
three years.
ACCOUNTING PRONOUNCEMENTS
We adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) effective January 1, 1999. SOP 98-5 requires that all start-up costs be
expensed and that the effect of adopting
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SOP 98-5 be reported as the cumulative effect of a change in accounting
principle. The effect of adopting SOP 98-5 on our results of operations was
immaterial.
We adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 established standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.
MARKET RISK DISCLOSURES
INTEREST RATE RISK
Our interest rate risk exposure primarily results from our debt portfolio
consisting principally of long-term debt due affiliates, representing variable
rate borrowings for which the carrying value of the obligation approximates fair
value. At March 31, 1999, long-term debt due to Williams of $818.1 million
accrued interest at a floating interest rate which is currently 5.65%.
FOREIGN CURRENCY RISK
We have international investments, primarily in Australia, Brazil, Canada
and Chile, that could affect our financial results if the investments incur a
permanent decline in value as a result of changes in foreign currency exchange
rates and the economic conditions in foreign countries.
At March 31, 1999, we had a $314 million preferred stock investment in a
Brazilian telecommunications venture. Estimating cash flow by year from this
investment is not practicable, given that the cash flows from or liquidations of
this investment are uncertain. In recent months, the Brazilian economy has
experienced significant volatility resulting in a 30% reduction in the Brazilian
Real against the U.S. dollar. However, management believes the fair value of
this investment approximates the carrying value. An additional 20% reduction in
the value of the Brazilian Real against the U.S. dollar could result in up to a
$63 million reduction in the value of this investment. This analysis assumes a
direct correlation in the fluctuation of the Brazilian Real against the value of
our investment. The ultimate duration and severity of the conditions in Brazil
remains uncertain, as does the long-term impact on our interest in this venture.
Management continues to monitor currency fluctuations in this region and
considers the employment of strategies to hedge currency movements when cash
flows from this investment warrant the need for such consideration.
At March 31, 1999, the net assets of foreign operations that we consolidate
are located in various other countries throughout the world and approximate 7%
of our total net assets. These foreign operations, whose functional currency is
the local currency, do not have significant transactions or financial
instruments denominated in other currencies. However, these investments do have
the potential to impact our financial position, due to fluctuations in these
local currencies arising from the process of remeasuring the local functional
currency into the U.S. dollar. A 20% decrease in the respective functional
currencies against the U.S. dollar would have an impact of approximately $15
million on our financial position. Management continually monitors fluctuations
in these respective currencies and considers investment alternatives if any
currency devaluation is considered to be significant.
YEAR 2000 READINESS DISCLOSURE
OUR STATE OF READINESS
Beginning on January 1, 2000, installed computer systems and software
products must either accept four digit entries to distinguish the year 2000 and
all subsequent years from the year 1900 or be modified to recognize the change
of the century even though there are only two digits being used.
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We, with Williams, established a plan in 1997 to address Year 2000 issues
relating to the areas of our business that could be impacted by the date and
time change from 1999 to 2000. We are reviewing our products and services as
well as our internal systems in order to identify and modify the products,
services and systems that are date-and time-sensitive. These areas include:
- traditional informational technology
- non-traditional informational technology
- external interfaces with our customers and vendors
Our traditional information technology, or IT, includes our software,
applications, data and related computer hardware equipment, such as mainframe
and personal or midrange computers. Our non-traditional technology, or Non-IT,
includes all computer hardware, network hardware, plant equipment and other
embedded items that contain date-sensitive code. Examples of Non-IT include
elevator control systems, card key access systems and telecommunications
equipment.
Also in 1997, Williams established a Year 2000 committee to oversee
management and execution of the plan. The Year 2000 issue is being addressed in
the following phases:
- awareness
- inventory and assessment
- renovation and replacement
- testing and validation
The initial phase, awareness, is a continuing process intended to heighten
awareness of Year 2000 issues both within our company and among our customers.
We have completed the inventory and assessment phase. During this phase, we
inventoried and classified all systems with possible Year 2000 implications into
the following categories:
- highest, compliance is business critical
- high, compliance necessary within a short period of time following
January 1, 2000
- medium, compliance necessary within 30 days from January 1, 2000
- low, compliance desirable but not required
- unnecessary
We designated the first three categories above as critical and as our major
focus. Critical systems are systems that directly support customer systems and
applications for our products and services customer base. Examples of critical
systems include our solutions unit's "SIMS" database which holds our solutions
unit's customer records and our network unit's provisioning and ordering
fulfillment system.
We split the inventory and assessment phase into two categories, IT and
Non-IT. We hired an external contractor as a consultant to provide support
services for the IT assessment. Third-party software information was compared
with the contractor's master product compliance database to determine Year 2000
compliance status. Vendors were contacted for software not found in this master
database. The systems identified in the assessment phase included all date-and
time-sensitive hardware and embedded items. The Non-IT assessment was developed
to ensure that all computer hardware, network hardware and plant equipment
continues to operate without interruption up to and beyond the rollover to the
year 2000. The systems identified in the assessment included both manned sites
and unmanned network sites as well as other Non-IT systems.
For the testing and validation phases, a Year 2000 test lab capable of
testing almost any software is in place and operational. As of June 30, 1999,
approximately 94% of our IT systems
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have been fully tested or otherwise validated as compliant. An example of
another way a system is validated as compliant is when a business process is
determined not to be date- and time-sensitive. Approximately 2% of our IT
systems, which are deemed compliant by vendors or employees, have not yet been
validated; of this 2%, we have categorized 100% as critical. Approximately 4%
have been identified as not Year 2000 compliant; of this 4%, we have categorized
100% as critical. Approximately 99% of our Non-IT systems have been tested and
were found to be compliant. Less than 1% remain to be tested and have been
categorized as critical. Less than 1% of the Non-IT systems are not compliant
and have been characterized as critical.
We expect to complete the renovation and replacement and testing and
validation phases for most of the critical systems by August 31, 1999. Some
non-critical systems that will not have a material impact on our business may
not be compliant until after January 1, 2000.
We have initiated a formal communications process with customers, vendors,
service providers and other companies to determine the extent to which these
companies are addressing Year 2000 compliance. In connection with this process,
as of June 30, 1999 we had sent approximately 9000 letters and questionnaires to
third parties who have conducted business with us during the last three years.
While the response rate has been 37% overall, the response rate is higher from
our critical business partners. For example, there is a 72% response rate from
our IT business partners, a 78% response rate from our Non-IT partners and a 44%
response rate from our lessors. Virtually all of these companies have indicated
that they are already compliant or will be compliant on a timely basis. We have
identified the most critical business partners and are currently in the process
of determining the amount of risk to which we may be exposed. Where necessary,
we will be working with key business partners to reduce the risk of a break in
service or supply and with non-compliant companies to mitigate any material
adverse effect on our business.
We have utilized both internal resources and external contractors to
complete the Year 2000 compliance project. We have a core group of 13 people who
are responsible for coordinating, organizing, managing, communicating, and
monitoring the project and another estimated 80 staff members are responsible
for completing the project. Depending on which phase the project is in and what
area is being focused on at any given point in time, there can be an additional
50 to 250 employees working on completion of the project. The estimated cost of
our external contractors is approximately $3.5 million.
COSTS OF YEAR 2000 COMPLIANCE
We expect to incur total costs of $11.8 million to address the Year 2000
issue. Of this total, approximately $2.2 million is expected to be incurred for
new software and hardware purchases and will be capitalized with the remaining
amounts expensed. Through April 30, 1999, approximately $5.2 million has been
expensed and $233,000 has been capitalized. The $11.8 million in total costs has
been or is expected to be spent as follows:
- First quarter 1998. Prior to and during the first quarter of 1998, we
conducted the project awareness and inventory and assessment phases of
the project and incurred costs totaling $200,000.
- Second quarter 1998. We spent $700,000 on renovation and replacement and
the completion of the inventory and assessment phase.
- Third and fourth quarter 1998. We focused on the renovations and
replacement, and testing and validation phases in which a cost of
approximately $2.5 million was incurred.
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- First quarter 1999. Renovations and replacement and testing and
validation continued, and contingency planning began. We spent
approximately $2 million during the first quarter of 1999.
- Second quarter 1999. Our primary focus shifted to testing and
validation, and contingency planning and final testing, with $4 million
expected to be spent.
- Third and fourth quarters 1999. We will focus primarily on contingency
planning and final testing and estimate that we will spend $2.4 million.
Of the approximately $6.4 million of future costs necessary to complete the
project on schedule, approximately $4.4 million will be expensed and the
remainder capitalized. This estimate does not include our potential share of
Year 2000 costs that may be incurred by partnerships and joint ventures in which
we participate but are not the operator. The costs of previously planned system
replacements are not considered to be Year 2000 costs and are therefore excluded
from the amounts discussed above.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Our estimates of costs associated with the project and of the completion
dates are based on our best estimates, which we derived utilizing numerous
assumptions of future events, including the continued availability of resources,
third-party Year 2000 compliance modifications plans and other factors. We
expect the necessary modifications will be made on a timely basis and do not
believe that the cost of these modifications will have a material adverse effect
on our business, financial conditions and operating results. However, in part
due to the unavailability and high cost of trained personnel, the difficulty
locating all relevant computer code, reliance on third-party suppliers and
vendors and the ability to implement interfaces between the new systems and the
systems being replaced, there is a possibility of service interruptions due to
non-compliance. For example, power failures along the Williams network would
cause both customer and internal service interruptions. We cannot guarantee that
these estimates or completion dates will be achieved, and actual results could
differ materially from these estimates.
We have attempted to minimize our risks for the Year 2000 rollover by
taking actions, which include the following:
- following a comprehensive project methodology
- ongoing coordination with the legal and audit departments
- completing an audit of the software, hardware and firmware in use at our
facilities
- determining the business criticality of the items identified and
formulating appropriate action plans
- maintaining centralized storage of project documentation and
communication with critical files kept and logged as vital records
- contacting vendors, suppliers and business partners regarding their Year
2000 compliance efforts
- issuing consistent and approved responses to external requests regarding
Year 2000 status
- conducting ongoing management reporting and awareness and training
programs for employees
- contacting customers and notifying them of plans and changes (potential
or tangible) relating to our business
- taking appropriate legal actions where required based on contractual
agreements, warranties and representations (including Year 2000 wording
in contracts, warranties, and purchase orders)
- preventing the purchase or construction of any system, tools or processes
that are not Year 2000 compliant or upgradeable before January 1, 2000
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Although all critical systems over which we have control are planned to be
compliant and tested before the Year 2000, we have identified two areas of
concern. First is the possibility of service interruptions to us and/or our
customers due to non-compliance by third parties. Second is the delay in system
replacements scheduled for completion during 1999. We are closely monitoring the
status of these systems to reduce the chance of delays in completion. We believe
the most reasonably likely worst possible scenario would be a systems failure
beyond our control to remedy, which could materially prevent us from operating
our business. We believe that such a failure would likely lead to lost revenues,
increased operations costs, loss of customers or other business interruptions of
a material nature, in addition to potential claims including mismanagement,
misrepresentation or breach of contract.
CONTINGENCY PLANS
We began initial contingency planning during 1998 and significant focus on
that phase of the project is taking place in 1999. Guidelines for that process
were issued in January 1999 in the form of a formal business continuity plan. An
external contractor is working within each business unit to review existing
business continuity plans and to modify these plans to include Year 2000
contingency plans for the critical business processes, critical business
partners, suppliers and system replacements that may experience significant
delays.
Our Year 2000 contingency plan methodology is as follows:
- assess each business process for business risk and potential need for
contingency plans
- create business process contingency plans as needed based on the risk
analysis
- test the completed plans, evaluate the test results and revise plans
accordingly
- store completed plans both on-site and off-site
- maintain plan copies at the appropriate Year 2000 offices
- review and modify contingency plans as part of an ongoing change
management process
These plans should be defined by August 31, 1999 and implemented where
appropriate. However, due to the general uncertainty inherent in the Year 2000
issue and the inability to anticipate all potential risks, we cannot ensure our
ability to timely and cost effectively resolve all post-Year 2000 problems
associated with the Year 2000 issue that may affect our operations and business
or expose us to third party liability.
In addition to the Year 2000 committee which serves all of our business
units, our solutions unit has established a Year 2000 team to assist in making
its customer base Year 2000 compliant. The team consists of marketing, legal,
operations and other shared services personnel who assess, test and validate the
telecommunications products for our solutions unit's customer base. Monetary
support for the team and our solutions unit's Year 2000 project is provided for
out of each department's budget.
Our solutions unit team's purpose is to educate and inform customers and
employees about Year 2000 related issues and proactively seek to implement
upgrades to bring our customers into compliance. The majority of the upgrades
and new products needed to support the customer migration are available from the
manufacturers. Our solutions unit has launched extensive efforts including
direct and mass mailings to inform its customer base of the need to take action
to assess and if necessary, upgrade, their products to be Year 2000 compliant.
Although our solutions unit believes it has sufficient resources to provide
timely support to its customers that require product migrations or upgrades, our
solutions unit has set a July 31, 1999 target date for its products and services
contingency plan. This contingency plan will address both potential spikes in
the demand for customer support and potential problems with its suppliers. Based
on customer demand, our solutions unit will be reviewing its work projects to
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address customer service. To ensure timely delivery from its suppliers, our
solutions unit is proactively monitoring and seeking assurances from its key
suppliers. However, since the effort to provide Year 2000 compliant products and
essential services to its customers is heavily dependent on its major suppliers,
interruptions or disruptions in this supply could have an adverse material
impact on our solutions unit.
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INDUSTRY OVERVIEW
Telecommunications is the transmission of data, voice or video signals
across a distance. Data signals connect computers in networks such as the
Internet, or connect other devices, such as facsimile machines. Voice signals
usually connect people in telephone conversations. Video signals include video
conferencing and television signals. Telecommunications services are typically
divided into long distance and local services. The demand for all types of
telecommunications services has been increasing, with especially rapid growth in
high-speed data services, including the Internet. The telecommunications
industry includes telecommunications services, equipment, and technical services
for creating and operating telecommunications networks.
Recently, the telecommunications industry has been characterized by rapid
technological change, changes in the industry structure and increased demand for
services and equipment. A February 1999 report of the President's Council of
Economic Advisers estimated total U.S. telecommunications services and equipment
revenues in 1998 of $408 billion, up from approximately $250 billion in 1993.
Over the past several years, the telecommunications industry has undergone
significant structural change. Many of the largest equipment and service
providers have achieved growth through acquisitions and mergers. These
combinations have provided access to new markets, new products, and economies of
scale. Despite this consolidation, the number of new entrants is increasing and
small new entrants are gaining market share from the large and established
providers. In this highly competitive environment, telecommunications providers
are increasingly focusing on core activities and core competencies and
outsourcing non-core activities to other providers. This trend is a significant
change from the traditional integrated model that has prevailed in the industry
since its inception.
INDUSTRY TRENDS
ADVANCES IN TELECOMMUNICATIONS AND NETWORKING TECHNOLOGY
Telecommunications providers transmit voice, data and video signals
primarily over coaxial cable, copper cables, microwave systems, satellites and
fiber optic cables. Beginning in the 1960s, microwave systems began to replace
copper cable and by 1990, fiber optic cables had largely replaced copper cable
for long distance transmission. Fiber optic cables use light to transmit
information in digital format through ultra-thin strands of glass. Compared to
copper, fiber optic cables provide significantly greater capacity at lower cost
with fewer errors and increased reliability.
Several advances in switching and electronics have further increased the
bandwidth, or transmission capacity, of telecommunications networks. Dense
wavelength division multiplexing is a technology which allows the transmission
of multiple light signals through a single optical fiber and can currently
increase the bandwidth of fiber optic cables by up to 128 times the original
fiber optic technology.
Historically, carriers have built telecommunications networks based on
circuit switching. Circuit switching establishes and keeps open a dedicated path
until the call is terminated. While circuit switching has worked well for
decades to provide voice communications, it does not efficiently use
transmission capacity. Once a circuit is dedicated, it is unavailable to
transmit any other information, even when the particular users of that circuit
are not speaking or otherwise transmitting information. Packet switching is
replacing circuit switching. Packet switching divides data into small "packets"
which are then independently transmitted to their destination via the quickest
path. Upon their arrival, the packets are reassembled. Packet switching
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provides more efficient use of the capacity in the network because the network
does not establish inefficient dedicated circuits, which waste unused capacity.
The new packet networking technologies operate at very high speeds ranging
from 1.544 million bits per second, or DS-1, to 2.488 billion bits per second,
or OC-48, and beyond. A bit is the smallest unit of information a computer can
process and is the basic unit of data communications. By comparison, one voice
call requires roughly 64,000 bits per second. Packet networks are especially
efficient at carrying data signals.
CONVERGENCE OF VOICE AND DATA SERVICES
Telecommunications network designs have traditionally created separate
networks using separate equipment for voice, data and video signals. The
evolution from analog to digital technologies, which convert voice and other
signals into a stream of "1"s and "0"s, erases the traditional distinctions
between voice, data and video transmission services. High-bandwidth networks
that use advanced packet-switched technology transmit mixed digital voice, data
and video signals over the same network. This enables telecommunications
customers to use a single device for voice, data and video communications.
Although these devices are new to the market, customer interest and acceptance
are rapidly growing.
Each evolution, from copper to fiber optic cables, from one to many light
signals, from circuit switching to packet switching and from analog to digital
signals, has produced significant increases in network capacity. When considered
together, these evolutions have produced enormous increases in the ability to
transfer large amounts of information across vast distances almost
instantaneously. With each new leap in transmission capacity, end-users have
come to rely on their ability to access and manipulate ever greater amounts of
information quickly and easily. This reliance has consistently created demand
that outstrips the available capacity.
HISTORY OF THE MODERN TELECOMMUNICATIONS INDUSTRY
In the first half of the twentieth century, AT&T Corp. created the Bell
System, a nationwide collection of telecommunications network assets. For most
of the century, the Bell System operated as a regulated monopoly providing
telecommunications services in most areas of the U.S. Even in those areas where
a non-Bell System carrier, such as GTE Corp., provided local service, that local
carrier was a regulated monopoly providing local service, and AT&T provided
regulated monopoly long distance service.
The 1982 antitrust consent decree between AT&T and the U.S. Department of
Justice strongly influenced the current structure of the communications
industry. The consent decree was intended, among other things, to spur
competition in providing long distance service and supplying telecommunications
equipment. The decree required AT&T to divest its Bell operating companies to
seven newly created regional Bell operating companies, and divided the country
into approximately 200 local access and transport areas which delineate the
areas between which the regional Bell operating companies are prohibited from
providing long distance services and in which the regional Bell operating
companies are authorized to provide local exchange services. The regional Bell
operating companies remained regulated monopolists, operating network assets and
providing exchange services, including local telecommunications service, access
to long distance carriers and toll service within the exchange area. However,
the regional Bell operating companies were prohibited from providing services
between the different local areas and from manufacturing telecommunications
equipment. AT&T continued to operate the long distance network assets and
provide long distance services.
Long distance competition has increased significantly since the AT&T
divestiture. MCI, Sprint Corp. and Williams created nationwide fiber optic
networks to compete with AT&T.
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Other long distance providers purchased services primarily from these three new
networks or AT&T in order to compete for long distance market share. According
to the Federal Communications Commission, AT&T's market share fell from
approximately 90% in 1984 to approximately 45% in 1997. In 1997, MCI, Sprint and
LDDS, which acquired Williams' original fiber optic network in 1995, had
approximately 19%, 10%, and 7% market share respectively. All other long
distance providers accounted for the remaining 20% market share.
Similarly, supplying telecommunications equipment has become highly
competitive. Following the AT&T divestiture, the regional Bell operating
companies were no longer required to purchase from AT&T's equipment division
(now Lucent Technologies Inc.). As a result, other equipment providers,
including Nortel, Siemens AG, and Alcatel S.A. gained market share in both the
carrier and business markets. Increasing competition in all telecommunications
segments encouraged innovation in equipment features and helped the market grow.
Until 1997, virtually all of AT&T/Lucent's equipment sales to businesses were
direct sales through AT&T/ Lucent's sales employees. Lucent is increasingly
using independent vendors to sell its products. Likewise, in 1997, Nortel
shifted virtually all of its business equipment sales to independent vendors.
The Telecommunications Act replaced the restrictions on the regional Bell
operating companies from the 1982 consent decree and enhanced the development of
competition in telecommunications services. The Telecommunications Act:
- prohibits states from enforcing barriers to entry
- requires local Bell operating companies to interconnect with competing
carriers on non-discriminatory terms
- requires local Bell operating companies to lease parts of their networks,
including the telephone lines that connect an end-user to a local
exchange carrier's device for opening, closing or completing connections,
to competing carriers at cost-based prices
- requires local Bell operating companies to provide service at wholesale
rates to competing carriers for resale to end-users
- allows a regional Bell operating company to provide interexchange
services originating from wireless equipment or from non-wireless
equipment outside of the regional Bell operating companies' exchange
areas. A regional Bell operating company will be allowed to provide
interexchange service originating from non-wireless equipment within its
exchange areas if the FCC finds that the regional Bell operating company
has complied with certain requirements. See the section of this
prospectus entitled "Regulation -- General regulatory environment" for
more information.
By allowing providers to offer additional services, the Telecommunications
Act also stimulated competition for virtually all communications services,
including local exchange service, long distance service and enhanced services.
Providers are increasingly bundling these services and providing one-stop
shopping for end-user customers.
In the telecommunications market, a new industry model is replacing the
original model of a single regulated monopolist building and operating
end-to-end assets and providing all products and services. In this market,
carriers who do not operate their own nationwide transmission network serve an
increasing percentage of the market. The Telecommunications Act requirement that
regional Bell operating companies provide carrier services has led a large
number of providers to offer local services without owning local assets.
Increasingly, providers are offering telecommunications customers end-to-end
services without having to own and operate the end-to-end assets. Other
companies are focusing on operating the assets as efficiently and effectively as
possible. In the equipment market, independent network integrators are providing
an increasing share of products to businesses.
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RELEVANT MARKET SEGMENTS
THE MARKET FOR INTEREXCHANGE VOICE, DATA, INTERNET AND VIDEO SERVICES
Interexchange carriers provide telecommunications services between
exchanges. An exchange is a franchised geographical area within which a call
between any two exchange customers is considered a local call. Many
interexchange carriers offer some mix of retail services, which are those
provided directly to an end-user, and carrier services, which are those provided
to other carriers. Carriers provide interexchange services over their own
facilities, over the facilities of other carriers, or over a combination of
both.
The market for interexchange services has been growing rapidly due to lower
rates and increased transport of data. According to the President's Council of
Economic Advisers, in 1997 long distance usage was 500 billion minutes, up from
370 billion minutes in 1993. FCC statistics show that total operating revenues
for interexchange carriers increased to about $89 billion in 1997 from less than
$45 billion in 1987. Although much of the decline in AT&T's market share is
attributable to gains by MCI WorldCom and Sprint, the numerous interexchange
carriers with small individual market shares accounted for approximately 20% of
the market in 1997.
There has also been strong demand for increasing capacity in long distance
networks to accommodate the growth in Internet traffic. According to the
President's Council of Economic Advisers, the number of Internet host computers
was estimated at 35 million in early 1998, up from 20 million only six months
earlier and from fewer than 3 million in 1993. The U.S. Department of Commerce
in 1998 cited estimates that Internet traffic doubles every 100 days.
High-volume, high-speed and high-capacity interexchange services are almost
exclusively provided by facilities-based interexchange carriers such as AT&T,
MCI WorldCom and Sprint, which operate networks principally using their own
transmission facilities and extensive geographically dispersed switching
equipment. Recently, other interexchange carriers have been building national or
regional networks to provide service using primarily their own fiber optic
transmission facilities, including ourselves, Qwest, Level 3, IXC, GTE and
Frontier Corp.
All interexchange carriers lease some of their transmission facilities from
other carriers. The dependence of an interexchange carrier on leased facilities
varies widely:
- interexchange carriers with national networks that provide services
primarily using their own facilities still lease some amount of
transmission capacity from other carriers to back up their service
routing, augment areas where they may have traffic bottlenecks or cover a
particular geographic area not covered by their own networks
- many other interexchange carriers own switches but obtain transmission
capacity primarily by leasing other interexchange carriers' transmission
services
- other interexchange carriers depend entirely on leasing transmission and
switching services from other interexchange carriers
The types of high-volume interexchange services purchased by carriers also
vary widely. High-volume interexchange services can be priced based on minutes
of usage or amount of capacity leased. These leases can vary in duration from
one day to many years.
THE MARKET FOR EQUIPMENT MANUFACTURING AND DISTRIBUTION
The telecommunications equipment industry in the U.S. has grown
substantially in the last several years through sales to local and long distance
carriers, end-users, Internet and other data service providers. The President's
Council of Economic Advisers reports that total sales of
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telecommunications equipment in 1997 exceeded $70 billion and are estimated to
have reached $120 billion in 1998, up from a total of $40 billion in 1993. The
dramatic growth of the telecommunications and data networking equipment industry
stems in part from the development of new technologies, including technologies
which allow systems to provide integrated voice and data services, and from
increased capacity demands, which require both established and new carriers to
expand and upgrade their facilities. Manufacturers distribute telecommunications
equipment through their own sales forces as well as through agents.
THE MARKET FOR COMMUNICATIONS AND DATA SOLUTIONS
Businesses seek solutions to the challenges of selecting, maintaining and
upgrading information and communications technologies and services amid rapid
technological advances. Under these conditions, the demand for consultants'
services in systems integration and communications networks has been growing
strongly. Businesses such as our solutions unit, Norstan, Inc. and International
Network Services assess customers' communications and information technology
needs, evaluate equipment and services options, procure equipment and services,
implement efficient network solutions and manage the combination of
technologies.
THE MARKET FOR EXCHANGE SERVICES
Today, local Bell operating companies continue to provide the vast majority
of local telephone services within their markets. However, as a result of
regulatory and technological changes over the past few years, a number of
competitive local exchange carriers, have begun to compete with the local Bell
operating companies.
The FCC reports that in 1996 local service revenues totaled approximately
$97 billion, with 109 competitive local exchange carriers accounting for about
$1 billion in revenues. The market share of competitive local exchange carriers
has grown rapidly in the last few years. According to the President's Council of
Economic Advisers, at the end of 1998 competitive local exchange carriers served
about five million lines, or 2% to 3% of local lines in the U.S.; because
competitive local exchange carriers have focused on serving the largest and most
profitable customers, competitive local exchange carriers accounted for about 5%
of the local telephone services market by revenue in 1998.
Leading competitive local exchange carriers include MCI WorldCom (through
its MFS Network Technologies, Inc. and Brooks Fiber Properties, Inc.
subsidiaries), AT&T (through its Teleport Communications Group, Inc.
subsidiary), WinStar, Intermedia and ICG Communications, Inc. Often, in addition
to local telephone services, competitive local exchange carriers provide
interexchange services and other services such as mobile telecommunications,
video and/or Internet-related services. Cable television systems provide local
telecommunications services in many areas. Cellular and other wireless service
providers also provide local telephone services.
THE U.S. MARKET FOR INTERNATIONAL LONG DISTANCE SERVICES
The U.S. international long distance market is growing due to increased
competition (including through World Trade Organization agreements),
deregulation, price decreases, growth in usage and revenues and development of
new services. According to the FCC, total international services revenues of
U.S. carriers exceeded $19 billion in 1997, up from about $5 billion in 1987.
The largest U.S. international carriers by market share in 1997 were AT&T, MCI
WorldCom and Sprint. Carriers with small individual market shares accounted for
a total market share of 21.8%.
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RELEVANT FOREIGN TELECOMMUNICATIONS MARKETS
We have significant investments and operations in foreign communications
carriers. For information regarding our investments in Brazil, Australia and
Chile, see the section of this prospectus entitled "Business -- Strategic
investments -- International."
Canada. Supplying telecommunications equipment and services is open to
competition in Canada. Competitive long distance carriers have been operating in
Canada since 1990 as resellers and since 1992 with their own facilities. The
national Canadian regulatory agency, CRTC, opened the local telecommunications
markets to competition in 1997, and allowed competition in the international
services market in 1998.
In addition to our solutions unit, leading providers of communications
equipment to businesses in Canada include Bell Canada, BCT. Telus Communications
Inc., Lucent Technologies Canada Inc. and Mitel Corporation.
Brazil. Until a few years ago, almost all telecommunications services in
Brazil were provided by government-owned monopoly carriers, the largest of which
were Telecomunicacoes Brasileiras S.A., known as Telebras, in local services,
and Empresa Brasileira de Telecomunicacoes S.A., known as Embratel, in long
distance services.
In recent years, the telecommunications sector in Brazil has been
progressively opened to competition and privatized. The Brazilian
telecommunications market experienced a sharp increase in demand in the 1990s,
which outstripped the capacity of the telecommunications infrastructure. The
desire to improve the networks' capacity to handle this increased demand,
accompanied by advances in telecommunications technology, led the government in
1998 to privatize the incumbent carriers. Buyers paid approximately $19 billion
to purchase these carriers. The twelve new carriers provide local, long distance
and cellular services and cover separate geographic regions. In addition, the
government is allowing private Brazilian and foreign companies to compete in the
telecommunications market through competitive wireless and non-wireless
licenses.
The Brazilian government auctioned additional regional licenses in 1997;
the new carriers began cellular service in 1998 and 1999. The government has
indicated that after 2000 it may sell additional licenses for wireless voice and
data services.
In 1997, Brazil had 2.75 mobile telephone subscribers per 100 inhabitants
and 10.66 non-wireless telephone access lines per 100 inhabitants for a total of
17 million access lines, according to the International Telecommunication Union.
We expect that the market for telecommunications services in Brazil will grow
rapidly as the private carriers expand their networks, improve service quality
and drive down prices through competition.
Australia. The Australian government has pursued a staged transition from
a government-owned monopoly of telecommunications services and infrastructure to
open competition. Between 1991 and 1997, the Australian government established a
duopoly between Telstra Corporation Limited and Cable & Wireless Optus Ltd. for
the provision of fixed telecommunications infrastructure. The Australian
government also established an oligopoly among Telstra, Optus and a subsidiary
of Vodafone Group PLC for the provision of mobile telephony services. On July 1,
1997, the Australian government opened all sectors of the Australian
telecommunications industry to competition. Telstra continues to be the dominant
non-wireless carrier.
The International Telecommunication Union reports that in 1997 Australia,
with a total of approximately 9 million non-wireless telephone access lines, had
50.45 telephone lines and 26.40 mobile telephone subscribers per 100
inhabitants.
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Chile. Chile was the first Latin American country to eliminate the state
monopoly provision of telecommunications services and today has the most
competitive telecommunications sector in Latin America. The process of
privatization and opening up of monopoly telecommunications markets in Chile
began in 1982 with the General Telecommunications Law, which allowed companies
to provide service and develop telecommunications infrastructure without
geographic restriction or exclusive rights to serve. There has been competition
in non-wireless services since 1994.
With privatization and competition, telecommunications has been one of the
most dynamic sectors in Chile's economy. By 1997, according to the International
Telecommunication Union, Chile's non-wireless network consisted of approximately
2.7 million lines, for a penetration rate of approximately 17.98 telephone lines
for every 100 inhabitants; Chile had a mobile telephone penetration of 2.80
cellular subscribers per 100 inhabitants.
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BUSINESS
WILLIAMS COMMUNICATIONS GROUP, INC.
We own, operate and are extending a nationwide fiber optic network focused
on providing voice, data, Internet and video services to communications service
providers. We also sell, install and maintain communications equipment and
network services that provide solutions for the comprehensive voice and data
needs of organizations of all sizes. Our business units are our network unit,
our solutions unit and our strategic investments unit.
Our network unit offers voice, data, Internet and video services as well as
rights of use in dark fiber on our low-cost, high-capacity nationwide network,
which is based on a high-quality transmission technology using packet switching.
The communications companies we serve include long distance carriers, local
service providers, Internet service providers, international carriers and
utilities. Long distance carriers include providers which sell services on their
own networks or utilize other providers' networks to sell services. We plan to
extend the Williams network to encompass a total of over 33,000 route miles of
fiber optic cable, utilizing pipeline and other rights of way, to connect 125
cities by the end of the year 2000. The Williams network currently consists of
approximately 21,400 route miles of installed fiber optic cable, with 18,770 of
those miles in operation, or lit.
Our solutions unit distributes and integrates communications equipment from
leading vendors for the voice and data networks of businesses of all sizes as
well as governmental, educational and non-profit institutions. We provide
planning, design, implementation, management, maintenance and optimization
services for the full life cycle of these networks. We also sell the
communications services of select customers of our network unit and other
carriers to our solutions unit's customers. We serve an installed base of
approximately 100,000 customer sites in the U.S. and Canada. Our solutions unit
has approximately 1,200 sales personnel, approximately 2,400 technicians and
approximately 800 engineering personnel in 110 offices.
Through our strategic investments unit, we make investments in, or own and
operate, domestic and foreign businesses that create demand for capacity on the
Williams network, increase our service capabilities, strengthen our customer
relationships, develop our expertise in advanced transmission electronics or
extend our reach. Our domestic strategic investments include ownership interests
in Concentric, UniDial and UtiliCom. Our international strategic investments
include ownership interests in communications companies located in Brazil,
Australia and Chile. Businesses we own and operate include Vyvx, a leading video
transmission service for major broadcasters and advertisers, and other
communications businesses.
Our solutions unit contributed approximately 78.9% of our total revenues
during 1998, approximately 83.3% of our total revenues during 1997 and
approximately 80.6% of our total revenues during 1996. Our strategic investments
unit contributed approximately 12.8% of our total revenues during 1998,
approximately 15.3% of our total revenues during 1997 and approximately 18.8% of
our total revenues during 1996. Our network unit contributed approximately 11.2%
of our total revenues during 1998, approximately 3.0% of our total revenues
during 1997 and approximately 1.6% of our total revenues during 1996.
As a result of the expansion of the Williams network, we expect our network
unit to contribute an increasing percentage of our total consolidated revenues
and by 2000 we expect our network unit to contribute the largest percentage of
our revenues and to be the primary source of our income from operations on a
consolidated basis. Over the next few years, revenue increases
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in our solutions unit are expected to be modest, with higher growth expected
during the same period in our strategic investments unit.
We enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the Williams network and to
enhance our service offerings. We currently have strategic relationships with
SBC, Intel, Telefonos de Mexico, Metromedia Fiber Network, WinStar, Intermedia
and U S WEST. We will continue to pursue additional strategic alliances.
HISTORY OF BUILDING NETWORKS
Williams began building gas and petroleum pipeline networks more than 80
years ago and is currently one of the largest volume transporters of natural gas
in the U.S. Over the years, Williams has constructed, acquired and managed over
100,000 miles of energy pipelines. In 1985, Williams entered the communications
business by pioneering the placement of fiber optic cables in pipelines no
longer in use. Williams also pioneered the strategy of providing services solely
to other communications providers. By 1989, through a combination of
construction projects and acquisitions, Williams had completed the fourth
nationwide digital fiber optic network, consisting of approximately 9,700 route
miles. The first three networks were constructed by AT&T, MCI WorldCom and
Sprint. By 1994, WilTel, Williams' communications subsidiary, was one of the top
four providers of high capacity data services, one of the top five providers of
long distance voice services and the first provider to offer nationwide frame
relay transmission capacity, a high-speed form of packet switching, well-suited
for connecting computers to each other, which supports data units of variable
lengths. In 1994, WilTel had approximately $1.3 billion in revenues and
approximately 5,000 employees.
In January 1995, Williams sold the WilTel network business to LDDS (now MCI
WorldCom) for approximately $2.5 billion. The sale included the nationwide fiber
optic network and the associated consumer, business and carrier customers.
Williams excluded from the sale an approximately 9,700 route-mile single fiber
strand on the nationwide network, WilTel's telecommunications equipment
distribution business and Vyvx. Under agreements with MCI WorldCom, this fiber
strand can only be used to transmit video and multimedia services, including
Internet services, until July 1, 2001. Multimedia services integrate various
forms of media, including audio, video, text, graphics, fax and Internet. After
July 1, 2001, this fiber strand can be used for any purpose, including voice and
data tariffed services.
As part of the sale to LDDS, Williams agreed not to reenter the
communications network business until January 1998. In January 1998, Williams
reentered the communications network business, announcing its plans to develop
the Williams network.
INDUSTRY AND MARKET OPPORTUNITIES
We believe we are uniquely positioned to take advantage of changes and
developments in the communications industry. These anticipated changes and
developments include:
- Innovations in technology. Technological innovations are increasing both
the supply of and demand for telecommunications transmission capacity
while also driving increased integration in voice and data networks.
Innovations in optics technologies, consisting of both higher quality
fiber optic cable and improved transmission electronics, have increased
the capacity and speed of advanced fiber optic networks while decreasing
the unit cost of
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transmission. This increased capacity and speed, combined with continuing
advancements in the power of microprocessors, have resulted in the
development of bandwidth-intensive applications, growth in Internet usage
and increases in the number of network users. We are developing our
advanced fiber optic network to meet the increasing demand for
transmission capacity.
- Increasing demand for communications services. We believe that there is
and will continue to be a significant growth in demand for long distance
data, Internet, voice and video services. The increase in computing
power, number of computers networked over the Internet and connection
speeds of networked computers are driving tremendous increases in
communications use for Internet and data services. Prices for cellular
and long distance voice services have decreased, resulting in increased
demand for these services. We believe video conferencing, digital
television and other multimedia applications being developed will
continue to increase demand for transmission capacity. We believe the
Williams network is well positioned to capture this growing demand.
- Deregulation within the communications industry. Around the world, the
communications industry is experiencing liberalization. In the U.S., the
long distance market became highly competitive in the 1980s following the
break up of AT&T, and the Telecommunications Act was designed to open
local markets to competition. Many new companies have formed to compete
for markets that have been traditionally dominated by a very small number
of providers. Our full-service platform enables both new entrants to
compete in this market and existing service providers to expand into new
markets. The Williams network will offer an attractive alternative to
network ownership for these carriers.
- Increasing specialization within the communications industry. We believe
industry specialization will continue to occur as communications
companies focus on their core competencies and outsource non-core
activities. In the long distance services market, we anticipate that many
new entrants will focus on branding and retail distribution while
outsourcing the development of network infrastructure and services.
Similarly, we believe that some communications providers, such as
Internet service providers, will focus on developing value-added services
and will outsource long distance transmission services. As a result, we
believe there will be significant demand for a provider of advanced,
high-quality, low-cost communications services to other communications
companies. The Williams network is well positioned to benefit from this
market opportunity.
OUR NETWORK UNIT
We own, operate and are extending a nationwide fiber optic network. We
offer services over the Williams network to communications companies, including
regional Bell operating companies, long distance carriers, competitive local
exchange carriers, Internet service providers, international carriers and
utilities.
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STRATEGY
Our objective is to become the leading nationwide provider of voice, data,
Internet and video services to national and international communications
providers. To achieve this objective, we intend to:
- Become the leading provider to communications carriers. We focus on
providing high-quality communications services to other carriers as they
seek to benefit from the growth in communications demand. We also offer
our customers the flexibility to control their own service platforms so
that they choose to buy services from us rather than build these
capabilities themselves. Since our network unit targets the carrier
market, we do not compete with our customers for retail end-users. By not
competing with our customers, we believe we can become the provider of
choice to other carriers.
- Deploy a technologically advanced network. We are combining advanced
optical and electronic transmission equipment with our innovative network
design to offer highly flexible, efficient and reliable network services
to our customers. Our innovative network design provides high-quality
network services to support voice, data, Internet and video traffic at a
lower investment than other currently deployed network architectures due
to the elimination of several layers of costly equipment. The Williams
network design also provides our customers with control over the quality
of service they receive and provides us with the flexibility to introduce
new services.
- Pursue strategic alliances. We pursue strategic alliances with
communications providers which offer the potential for long-term,
high-capacity commitments for traffic on the Williams network, resulting
in increased revenues and decreased unit costs. To date, we have entered
into strategic alliances with SBC, Intel, Telefonos de Mexico, Metromedia
Fiber Network, WinStar, Intermedia and U S WEST and others to provide
network services. Our strategic alliances also allow us to combine our
capabilities with those of our alliance partners and thereby offer our
customers a more complete product set, including local and international
capacity and Internet access services.
- Leverage network construction, operation and management experience. We
are utilizing Williams' long history of constructing, operating and
managing communications and energy networks to develop the Williams
network. By the time Williams sold the WilTel network in 1995 for
approximately $2.5 billion, WilTel had approximately $1.3 billion in
revenues, approximately 5,000 employees and operated approximately 9,700
route miles. Many of our current employees worked with Williams in
various capacities during the WilTel network build until its subsequent
sale to LDDS. This experience translates into expertise in planning,
designing, constructing and managing a cross-country network.
- Utilize pipeline rights of way. Where feasible, we construct the
Williams network along the rights of way of Williams and other pipeline
companies. We believe that use of pipeline rights of way gives us
inherent advantages over other systems built over more public rights of
way, such as railroads, highways, telephone poles or overhead power
transmission lines. These advantages include greater physical protection
of the fiber system, lower construction costs and lower operational
costs.
- Establish international connectivity. We pursue strategic relationships
that allow us to exchange capacity on the Williams network for
cost-effective access and capacity on international networks or that
allow us to use our network construction and management
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experience to construct international networks. We intend to establish
alliances with international carriers that will expand our capabilities
throughout Europe and other key markets. Select domestic alliances will
also allow us to provide international capabilities such as
cost-effective use of SBC's capacity on China-U.S. and Japan-U.S.
submarine fiber optic cable systems.
- Establish low-cost position. Our carrier market focus, network design
and strategic alliances as well as dark fiber sales enable us to
establish and maintain a low-cost position. Our carrier services focus
enables us to maintain small, focused marketing and customer service
departments, reducing our operating costs. Our advanced network design
eliminates several unnecessary layers of costly equipment. Our strategic
alliances drive our unit costs lower due to the purchases of large
volumes of services on the Williams network and reduced cost access to
the services of our strategic alliance partners. Dark fiber sales allow
us to reduce the capital investment in the Williams network and share
future operating and maintenance costs with those companies to which we
have sold capacity.
NETWORK INFRASTRUCTURE
We anticipate that the Williams network will total over 33,000 route miles
connecting 125 cities when completed by the end of the year 2000. For the period
from March 31, 1999 through December 31, 2000, we anticipate that we will spend
approximately $3.4 billion developing the Williams network. The following table
describes our network infrastructure (numbers are approximate):
<TABLE>
<CAPTION>
AVERAGE AVERAGE
MILES IN NUMBER NUMBER OF AVERAGE NUMBER
ROUTE MILES OPERATION OF FIBERS FIBERS RETAINED OF SPARE CONDUITS
----------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Retained WilTel Network(1)... 9,700 9,700 1 1 N/A
Acquired new fiber(2)........ 9,320 4,620 11 9 0.3
Completed fiber builds....... 5,200 4,450 102 21 1
Future fiber builds.......... 8,900 -- 100 24 2
------ ------
Total............. 33,120 18,770
====== ======
</TABLE>
- -------------------------
(1) We have the right to acquire from MCI WorldCom approximately 7,700
additional route miles of a single fiber optic strand which is restricted to
multimedia purposes until July 2001.
(2) This category consists of rights in dark fiber and conduits which we have
acquired or intend to acquire through purchases or exchanges. We have
already acquired approximately 7,400 route miles from IXC and other
carriers, of which 5,500 route miles have had fiber optic cable installed.
We intend to acquire an additional 1,800 route miles by the end of 2000.
We currently have approximately 21,400 route miles of fiber optic cable
primarily installed in the ground, with approximately 18,770 of those miles
currently in operation. Of the approximately 18,770 route miles currently in
operation, approximately 9,700 route miles consist of the Retained WilTel
Network. We are currently installing new transmission equipment on the Retained
WilTel Network to increase its transmission capacity and ensure its
compatibility with the newer portions of the Williams network. Due to advances
in transmission electronics, it is now possible to carry as much traffic on this
single fiber optic strand as on 128 fiber optic strands
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four years ago. In addition, the Retained WilTel Network will provide additional
routes for the Williams network into select major markets.
We began building the newer portions of the Williams network in January
1998 following the expiration of the non-compete agreement with MCI WorldCom. We
will expand the Williams network through both new network construction and
acquisition of capacity on networks owned and to be constructed by others. We
have constructed and plan to construct approximately 72% of the Williams network
in terms of network route miles and we have obtained and plan to obtain the
remaining 28% through acquisitions or exchanges. We manage the transmission
equipment on the fiber optic strands we obtain through acquisitions or
exchanges. We typically pay maintenance fees to other network providers to
maintain the fiber optic strands and rights of way we obtain through
acquisitions or exchanges.
We lease capacity from both interexchange and local telecommunications
carriers, including our competitors, in order to meet the needs of our
customers. We lease approximately 23% of our network capacity currently in use.
However, the leased capacity we currently use constitutes approximately 7% of
the total capacity currently available on our network. These leases are for
areas where we do not have on-network portions, or our on-network is not
currently sufficient to meet the expected capacity. This includes capacity to
provide service from our facility to another provider's facility. These leases
of capacity may contain minimum commitments that we will make in order to obtain
better pricing. We attempt to balance our off-network commitments with the
expected requirements of our customers.
Network design and infrastructure. The newer portions of the Williams
network we are constructing have the following characteristics:
- Multi-service platform. A multi-service operating system allows
traditional voice, data, Internet and video services to be provided on a
single ATM operating system. Most other carriers use multiple platforms,
or operating systems, which create distinct networks and organizations
for each service provided. Due to our unified platform approach, we have
greater efficiency and lower costs.
- ATM core switching. ATM core switching is a packet switching and
transmission technology based on sending various types of information,
including voice, data and video, in fixed-size cells. Packet-based
networks transport information compressed as "packets" over circuits
shared simultaneously by several users. Newly developed equipment based
on advanced communications standards enable packet-based networks to
carry voice and data more efficiently and at a lower cost than the
traditional telephone networks. We believe that utilizing ATM enables us
to provide higher-quality services than other packet technologies such as
Internet protocol, which do not currently send information in packets
with predictable characteristics.
- Advanced fiber optic cable. Fiber optic cable, including Corning's
LEAF(TM) fiber and Lucent TruWave(TM) fiber, which has a wider range of
spectrum than previously deployed fibers over which to send wavelengths
of light, enabling a greater number of wavelengths to be sent over long
distances.
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- DWDM. Dense wave division multiplexing is a technology which allows
transmission of multiple waves of light over a single fiber optic strand,
thereby increasing network capacity. By using DWDM, we are able to derive
sixteen wavelengths, at OC-192 capacity per wavelength, which is a
capacity of 9.953 gigabits per second, over a single fiber optic strand
with current technology and plan to derive up to thirty-two wavelengths
over a single fiber optic strand by the end of 1999.
- Use of meshed SONET instead of SONET rings. Use of meshed SONET, which
allows every location on the Williams network to be connected to multiple
other locations. Meshed SONET provides for more recovery options in the
case of a network failure, permits rapid provisioning of customer
services and allows for full utilization of capacity. Most other networks
use SONET rings, which automatically reverse signals at a specific point
along a network in the event of a network failure, providing for only one
recovery option. A SONET ring design also requires installation of up to
twice as much capacity for the same amount of traffic as compared to our
meshed SONET design.
- Closer spacing of transmission electronics. Spacing of transmission
electronics at 40-mile intervals. Most other fiber networks space their
electronics at 60-mile intervals. Our 40-mile spacing allows us to take
advantage of the latest advances in DWDM and other advances in optical
technology by reducing the distance over which light has to travel.
- Elimination of digital cross connect system. Exclusion of this system, a
high-cost, high-maintenance switching technology designed for
circuit-based systems. Circuit-based systems are the predecessor to the
ATM packet technologies we employ.
- Nortel DMS 250 switches. We will use the latest Nortel switching
technology to efficiently carry traditional voice services on our ATM
core network. At least seven Nortel DMS 250 voice switches will be
deployed on the Williams network, enabling us to provide temporary
connection voice services on the Williams network. We will install the
new switches in Anaheim, San Francisco, Kansas City, Houston, Chicago,
Atlanta and New York City.
The following is an example of how the Williams network is designed
compared to traditional circuit-based networks.
A traditional network consists of multiple layers of equipment, each
designed for a specific function. This design results in increased initial
investment, operating/maintenance expenses, and complexity. The capacity
potential of the equipment is limited and because of the complexity and amount
of equipment, the development of new services may take longer. The layers of
equipment in a traditional network include: digital cross connect systems
specific to the other types of equipment and which allow customers to access the
network, dedicated voice switch equipment which provides voice services by
completing voice calls, frame relay switch equipment and IP, or Internet
protocol, router equipment which interacts with the ATM switch equipment to
provide specific packet-based data services, including ATM, frame relay and
Internet transport services. Each equipment type ultimately requires significant
interfaces with SONET equipment with a limited use of DWDM equipment and maximum
use of fiber.
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The contrast in the number and width of each type of network equipment
represented in the traditional network versus the Williams network diagram
illustrates how the Williams network design is able to effectively use equipment
which provides multiple service offerings. This eliminates the requirement for
dedicated layers of equipment, thus simplifying the network while increasing
service flexibility. In the Williams network design, the need for a digital
cross connect system is eliminated. The multi-service aggregation switch
interacts with various transmission protocols and uses ATM packets to provide
various packet-based data services including ATM, frame relay services and
Internet transport services. The voice switch provides voice services using ATM
packets. The ATM switch is able to interact directly with the DWDM equipment
bypassing extensive SONET equipment usage. The simplicity in the unique Williams
network design results in lower costs and faster development and delivery of
services versus the traditional network design.
[FLOW CHART CONTRASTING TRADITIONAL NETWORK DESIGN
WITH THE WILLIAMS NETWORK DESIGN]
Conduit and fiber optic cable. The newer portions of the Williams network
that we are constructing are designed for expandability and flexibility and will
contain multiple conduits along approximately 70% of our routes. To construct
our fiber optic cable, fiber optic strands are placed inside small plastic tubes
and bundles of these tubes are wrapped with plastic and strengthened with metal.
We then place these bundles inside conduit, which is high-density polyethylene
hollow tubing 1 1/2 to 2 inches in diameter. Our conduit is generally pulled
through pipelines which are no longer used or it is buried approximately 42
inches underground along pipeline or other rights of way. We also use steel
casing in high-risk areas, including railroad crossings and high-population
areas, thereby providing for greater protection. The first conduit contains a
cable generally housing between 96 to 144 fibers, and the second conduit, or
third where constructed, serves as a spare. The spare conduit or conduits allows
for future technology upgrades, potential conduit sales and expansion of
capacity at costs significantly below the cost of new construction. After
existing and anticipated sales of dark fiber, we generally plan to retain
approximately 24 fibers for our own use on the constructed portions of the
Williams network.
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Points of presence. As of April 30, 1999, we had 38 points of presence or
POPs, which are environmentally-controlled, secure sites designed to house our
transmission, routing and switching equipment and local operational staff. We
plan to grow to 125 POPs by the end of 2000. A POP allows us to place customers'
traffic onto the Williams network. We are designing our POPs with up to 50,000
square feet in order to provide colocation services, which give our customers
direct access to the Williams network. Colocation services provide our customers
with access and space to install their own equipment in our POPs. We intend to
expand our network to include multiple POPs within select major metropolitan
areas in order to provide end-to-end service offerings for our carrier
customers.
Rights of way. The Williams network is primarily constructed by digging
trenches along rights of way, rights to use the property of others which we
obtain throughout the U.S. from various landowners. Where feasible, we construct
along Williams' pipeline rights of way and the rights of way of other pipeline
companies. Approximately 27% of our rights of way are along Williams' pipeline
rights of way and the remainder are along the rights of way of third parties.
Rights of way from unaffiliated parties are generally for terms of at least 20
years and most cover distances of less than one mile. Where necessary or
economically preferable, we have other right of way agreements in place with
highway commissions, utilities, political subdivisions and others. As of June
30, 1999, we had agreements in place for approximately 90% of the rights of way
needed to complete the Williams network. As of June 30, 1999, the remaining
rights of way needed for completion of the Williams network consisted of
approximately 3,300 route miles located primarily in the Western U.S. Almost all
of our rights of way extend through at least 2018.
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The following table sets forth our current and future plans as of June 30,
1999 for the Williams network build. This table does not include the routes of
the Retained WilTel Network.
<TABLE>
<CAPTION>
APPROXIMATE
ESTIMATED APPROXIMATE MILES IN
ROUTES COMPLETION DATE ROUTE MILES OPERATION
- ------ ------------------- ----------- -----------
<S> <C> <C> <C>
Atlanta -- Jacksonville Completed 370 370
Dallas -- Houston(1) Completed 250 250
Houston -- Atlanta -- Washington, D.C. Completed 1,830 1,830
Jacksonville -- Miami(2) Completed 330 330
Los Angeles -- New York City(1) Completed 4,370 4,370
Minneapolis -- Kansas City Completed 450 450
Portland -- Salt Lake City -- Los
Angeles(3) Completed 1,320 1,320
Los Angeles -- San Diego(4) Completed 150 150
Daytona -- Orlando -- Tampa 3rd quarter 1999 160 --
Detroit -- Cleveland(1) 3rd quarter 1999 200 --
Kansas City -- Denver 3rd quarter 1999 640 --
Los Angeles -- Sacramento -- Oakland --
San Jose(5) 3rd quarter 1999 830 --
Portland -- Seattle(4) 3rd quarter 1999 180 --
Washington, D.C. -- New York City 3rd quarter 1999 350 --
Bakersfield -- San Luis Obispo -- Fresno 4th quarter 1999 270 --
Bandon, Oregon -- Eugene, Oregon 4th quarter 1999 250 --
Corpus Christi -- Houston -- Laredo -- San
Antonio(1) 4th quarter 1999 740 --
Denver -- Salt Lake City 4th quarter 1999 570 --
Miami -- Tampa -- Tallahassee 4th quarter 1999 530 --
New Orleans -- Tallahassee 4th quarter 1999 480 --
Albany -- Boston 1st quarter 2000 180 --
Sacramento -- Portland(5) 1st quarter 2000 690 --
Los Angeles -- Phoenix -- San Antonio --
Houston 2nd quarter 2000 1,630 --
New York -- Boston 2nd quarter 2000 250 --
Salt Lake City -- Sacramento -- San
Francisco 2nd quarter 2000 850 --
Atlanta -- Nashville -- Cincinnati -- Chicago 4th quarter 2000 850 --
Chicago -- Cleveland -- Pittsburgh --
Washington, D.C. 4th quarter 2000 800 --
Chicago -- Detroit(1) 4th quarter 2000 280 --
Dallas -- Charlotte(1) 4th quarter 2000 1,250 --
Denver -- El Paso(1) 4th quarter 2000 750 --
Houston -- Kansas City -- St.
Louis -- Chicago 4th quarter 2000 1,300 --
Minneapolis -- Milwaukee -- Chicago(4) 4th quarter 2000 320 --
------ -----
TOTAL: 23,420 9,070
====== =====
</TABLE>
- -------------------------
(1) These routes were swapped or purchased by our company with no spare
conduits.
(2) We purchased this route along with one spare conduit.
(3) This route was jointly constructed by us, Enron Communications, Inc. and
Touch America, Inc. with no spare conduits.
(4) In addition to constructing one route with 2 spare conduits, we intend to
purchase 12 fibers along a diverse route between these cities.
(5) We purchased 12 fibers on these routes along with two spare conduits.
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Monitoring. We monitor the Williams network 24 hours a day, seven days a
week from our network management centers in Tulsa, Oklahoma and St. Louis,
Missouri. Each network management center provides centralized network
surveillance, troubleshooting and customer service. The system currently allows
our technicians to detect a component malfunction in the Williams network,
quickly reroute the customer's traffic to an available alternate path and effect
an expedited repair. Upon completion of the Williams network, the rerouting
function will be fully automated and nearly instantaneous so that customers will
not experience any disruptions in service quality. We expect this will reduce
service costs and customer downtime. We have also implemented a program which
encourages people to phone a toll-free number prior to breaking ground, backed
up by Williams' "call before you dig" group to reduce the risk of damage to our
conduit or fiber system. Additionally, we place above-ground markers at frequent
intervals along the route of the Williams network.
PRODUCTS AND SERVICES
Our network products and services fall into seven categories:
- packet-based data services
- private line services
- voice services
- local services
- dark fiber and conduit sales
- optical wave services
- network design and operational support
Packet-based data services. These services provide efficient connectivity
for data, Internet, voice and video networks at variable capacities across the
Williams network to connect two or more points. Specific packet-based data
services include ATM, frame relay and Internet transport services. These
services primarily operate over the Williams network and enable billing based on
quality of service and usage.
Private line services. We provide customers with fixed amounts of
point-to-point capacity across the Williams network. We offer these services
both across the Williams network and by purchasing capacity on other providers'
networks. As we complete the Williams network, we will increase the percentage
of these services we provide on our network.
Voice services. We currently provide connectivity across the Williams
network for our customers to complete long distance telephone calls using
capacity on other providers' networks. Our customers can use the Williams
network to handle origination and termination of long distance phone calls. As
we complete deployment of our voice switches and obtain the necessary regulatory
approvals, we will provide these and other voice services on the Williams
network and decrease our usage of others' networks. Other voice services will
include calling card, directory assistance, operator assistance, international
and toll-free services. As the traditional geographic boundaries for voice
services diminish, our voice platform will provide local, long distance and
international voice services.
Local services. We currently provide local connectivity for our carrier
customers through the resale of other providers' services. We have obtained
local capacity through our agreements with WinStar and Metromedia Fiber Network
and can obtain local capacity from SBC. We will develop specific products using
this capacity to meet our customers' local networking needs.
Dark fiber and conduit sales. We sell rights for dark fiber and related
services and may sell rights to conduit in the future. Dark fiber consists of
fiber strands contained within a fiber optic cable which has been laid but does
not yet have its transmission electronics installed. A sale of
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dark fiber typically has a term which approximates the economic life of a fiber
optic strand (generally 20 to 30 years). Purchasers of dark fiber typically
install their own electrical and optical transmission equipment. Substantially
all of our current and planned builds include laying two spare conduits, and we
may sell rights to use at least one of them. A purchaser of conduit typically
lays its own cable inside the conduit. Related services for both sales of rights
for dark fiber and conduits include colocation of customer equipment at our POPs
and network equipment locations and maintenance of the purchased fiber or
conduit. In the past two years, we have entered into approximately 15 agreements
for sales of dark fiber with Frontier, IXC, WinStar and others. Payment for dark
fiber is generally made at the time of delivery and acceptance of the fiber
although other payment options may be available. In addition, ongoing payments
for maintenance services are required. These transactions typically involve
sales of contractual rights to use the fiber or conduit, rather than sales of
ownership interests.
Optical wave services. The packet-based DWDM technology used in the
Williams network allows us to offer optical wave services to our customers.
These services allow a customer exclusive long-term use of a portion of the
transmission capacity of a fiber optic strand rather than the entire fiber
strand. This capacity we use to provide optical wave services is in addition to
the capacity used by us to provide our other services. We are able to derive
sixteen wavelengths from a single fiber strand with current technology and plan
to derive up to thirty-two wavelengths from a single fiber strand by the end of
1999. A purchaser of wavelength will install its own electrical interface,
switching and routing equipment and will share the fiber and optical
transmission equipment with other optical wave services users. We believe that
many potential customers will be interested in optical wave services because
they allow a customer to purchase capacity in smaller increments while retaining
the added control advantages of dark fiber.
Network design and operational support. We help our customers design and
operate their networks. We use our network management centers to monitor and
operate portions of their networks and use our solutions unit's resources to
expand and support our customers' networks. We are deploying new management
tools, including our customer network management system, which will give our
customers the ability to monitor network performance and reconfigure their
capacity from their own network management centers on an essentially real-time
basis and the ability to increase or reduce bandwidth rapidly to better match
their needs. Our customer network management system features equipment inventory
management, bandwidth inventory management, configuration management, fault
isolation management and alarm monitoring. In 1998, we provided network design
and operational support services primarily to Concentric and Savvis
Communications Corporation, an Internet service provider.
CUSTOMERS
We provide dedicated line and switched services to other communications
providers over our owned or leased fiber optic network facilities. Our customers
currently include regional Bell operating companies, Internet service providers,
long distance carriers, international carriers, utilities and other providers
who desire high-speed connectivity on a carrier services basis. We have entered
into strategic alliances with SBC, Intel, Telefonos de Mexico, Metromedia Fiber
Network, WinStar, Intermedia and U S WEST and others and have strategic
investments in UniDial, Concentric and UtiliCom, as well as international
strategic investments in communications companies located in Brazil, Australia
and Chile. These alliances and investments help to increase our volume of
business and provide additional customers for our network and solutions units.
We do not believe these alliances and investments will adversely impact our
relationships with our other customers. For more information about our strategic
alliances, see "-- Strategic alliances" below.
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Sales to Intermedia accounted for approximately 31.2% of our network unit's
revenues from external customers in 1998. Sales to Qwest accounted for
approximately 26.2% of our network unit's revenues from external customers in
1998. Sales to our next three largest customers, Hyperion, Concentric and
Frontier, together accounted for approximately 29.0% of our network unit's
revenues from external customers in 1998. Our remaining customers each accounted
for less than 3% of our network unit's revenues from external customers in 1998.
SALES AND MARKETING
We sell services and products to carriers through our sales organization.
Since we only sell to other communications carriers, our sales and marketing
department is small and focused, resulting in strong customer relationships and
lower operating costs. This organization consists of senior level management
personnel and experienced sales representatives with extensive knowledge of the
industry and our products and key contacts within the industry at various levels
in the carrier organizations. We position ourselves as the provider of choice
for communications carriers due to the quality of our service, the control we
provide customers over their service platforms, the reliability of our services
and our low cost position. We believe our cost advantages allow us to sell our
services on the Williams network at prices which represent potentially
significant savings for our large-volume customers relative to their other
alternatives.
COMPETITION
The communications industry is highly competitive. Some competitors in the
markets of carrier services and fiber optic network providers may have
personnel, financial and other competitive advantages. New competitors may enter
the market because of increased consolidation and strategic alliances resulting
from the Telecommunications Act, as well as technological advances and further
deregulation. In the market for carrier services, we compete primarily with the
three traditional nationwide carriers, AT&T, MCI WorldCom and Sprint, and other
coast-to-coast and regional fiber optic network providers, such as Qwest, Level
3 and IXC. We compete primarily on the basis of pricing, transmission quality,
network reliability and customer service and support. We have only recently
begun to offer some of our services and products and as a result we may have
fewer and less well-established customer relationships than some of our
competitors.
We believe that we have advantages over our competitors. AT&T, MCI WorldCom
and Sprint utilize systems that were constructed for the most part prior to
1990. We believe that the older systems operated by these carriers generally
face disadvantages when compared to the Williams network, such as:
- lower transmission speeds
- lower overall capacity
- more costly maintenance requirements
- inefficiency due to design and competing traffic requirements
- greater susceptibility to systems interruption from physical damage to
the network infrastructure
Many older systems will face greater difficulty in upgrading to more
advanced fiber due to lack of a spare conduit. We are aware that other
competitors may employ advanced technology that is similar to that of the
Williams network. Additional capacity that is expected to be available over the
next several years from competitors may cause significant decreases in prices
overall.
The prices we can charge our customers for transmission capacity on the
Williams network could decline due to installation by us and our competitors,
some of which are expanding
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capacity on their existing networks or developing new networks, of fiber and
related equipment that provides substantially more transmission capacity than
needed. If prices for network services significantly decline, we may experience
a decline in revenues which would have a material adverse effect on our
operations.
We believe that our strategy of selling products and services to other
communications carriers gives us an advantage over other fiber optic network
providers who compete with their customers. We believe that communications
carriers prefer not to buy products and services from a competitor. We also do
not need a large sales, marketing and customer service staff in order to support
the retail markets that our competitors serve. We can effectively reach and
serve a relatively small group of large customers with our smaller, efficient
and focused team, resulting in reduced costs.
RELATIONSHIP WITH MCI WORLDCOM
As part of our agreements with MCI WorldCom relating to the sale of the
majority of Williams' communications network business to LDDS, MCI WorldCom
granted us an option to purchase one fiber optic strand over approximately 7,700
miles of selected MCI WorldCom routes. In addition, we granted MCI WorldCom an
option to purchase one fiber optic strand over approximately 9,700 miles of
selected Williams network routes on the portions of the Williams network which
we began to develop in January 1998. The exercise price for each option is equal
to the capitalized cost attributable to the sold fiber plus a slight markup. Any
fiber optic strand we purchase pursuant to the option may only be used to
transmit video or multimedia services, including Internet services, until July
1, 2001. MCI WorldCom has agreed to provide private line, frame relay and
switched voice services for our and Williams' internal use through 2034. We have
agreed to pay MCI WorldCom its costs to unrelated third parties for these
services. Until July 1, 2003, we and MCI WorldCom have agreed not to directly
solicit the other's employees located in the Tulsa metropolitan area. Until
August 1, 1999, if either of us hires select key employees involved in network
planning or in management, the hiring company must pay to the other an amount
equal to five times the employee's annual compensation.
OUR SOLUTIONS UNIT
We sell, install and maintain network services and the communications
equipment of leading vendors to address our customers' comprehensive voice and
data needs. Our expertise in communications and data networks permits us to
offer customers a wide range of professional services, including network
planning, design, implementation, management, maintenance and optimization. We
also distribute the products and services of select communications service
providers, including some of our network's customers. In April 1997, we
purchased Nortel's equipment distribution business, which we then combined with
our equipment distribution business to create Williams Communications Solutions,
LLC. We own 70% of Solutions LLC and Nortel owns the remaining 30%. Our
solutions unit consists primarily of Solutions LLC.
Our broad range of voice and data solutions allows us to serve as a
single-source provider for our customers' communications needs. We distribute
the products and services of a number of communications suppliers, primarily
Nortel, as well as Cisco, Octel (a division of Lucent), NEC, 3COM, Bell
Atlantic, SBC and U S WEST, and are therefore able to provide our customers with
multiple options. By offering equipment from a variety of vendors, we help
businesses optimize the productivity and reduce the cost of their communications
systems. We have expertise in the most complex network technologies to ensure
that products from various suppliers operate together effectively.
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Selected statistics of our solutions unit as of March 31, 1999 include
(numbers are approximate):
<TABLE>
<S> <C>
Sales personnel........................ 1,200
Technicians............................ 2,400
Engineering personnel.................. 800
Operations support staff............... 1,400
Total customer sites................... 100,000
Sales and service locations............ 110
</TABLE>
STRATEGY
Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses. To achieve this objective, we intend to:
- Capitalize on converging voice, data, Internet and video needs. We
capitalize on the increased demand for new technologies as businesses
replace and upgrade existing communications infrastructure as a result of
an industry trend called convergence. Whereas in the past voice and data
equipment and networks were separate, convergence is the integration of
these separate technologies into a single communications environment. We
believe that our strong customer relationships, product portfolio and
technical experience provide us with an ideal platform to capitalize on
this trend.
- Leverage our engineering and technical resources. We have an experienced
staff of approximately 2,400 technicians and approximately 800
engineering personnel to design, install, manage and maintain our
customers' communications infrastructures. Our employees are trained to
address our customers' converged and complex communications needs, such
as Internet-connected call centers and voice over Internet protocol. As
technologies become more complex, the need for advanced communications
solutions such as these will continue to grow. Our engineering personnel
and technicians provide us with a competitive advantage in offering these
services.
- Provide advanced professional services. We provide comprehensive
services to assist customers in the design, engineering and operation of
their communications networks. Our services include advanced call center
applications, outsourcing, network engineering and network consulting. We
intend to continue to expand the professional services portion of our
business as customer demand for advanced communications and data network
solutions continues to grow.
- Utilize our nationwide presence and large, installed customer base. We
have approximately 110 sales and service locations throughout the U.S.
and Canada and approximately 100,000 customer sites. Our nationwide
presence allows us to better serve multi-location customers and makes us
a very attractive partner for leading communications equipment and
service providers. Our large, installed customer base provides us and
leading communications equipment and service providers with an existing
market to sell new products and services.
- Extend the reach of our network unit's carrier customers. We are able to
distribute the products and services of our network unit's customers to
our solutions unit's customer base. We are currently using our solutions
unit's 1,200 sales personnel to sell Concentric's Internet services and
UniDial's long distance services. In addition, we have agreed to offer
SBC's network services as they are made available to us. We believe that
our ability to extend the reach of our network unit's carrier customers
provides our network unit with a valuable point of differentiation.
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PRODUCTS AND SERVICES
We provide a comprehensive array of communications products and services.
Our products and services fall into three categories:
- equipment sales and service
- professional services
- sale of carrier services
Equipment sales and services provided approximately 78% of total
consolidated revenues for 1998, 83% of total consolidated revenues for 1997 and
79% of total consolidated revenues for 1996.
Equipment sales and service. We sell and install voice and data
communications equipment and provide service, maintenance and support for our
customers' communications networks.
- Voice and video equipment. We offer our customers a variety of voice and
video equipment, which enables our customers to communicate more
effectively. We also install, configure and integrate all of the
equipment they purchase. The voice systems we sell range from systems for
small businesses to systems for large enterprise sites, requiring
anywhere between 15 and 50,000 internal telephone lines. This equipment
includes private branch exchange systems, key systems, building wiring,
call centers, voice mail systems and premise (as opposed to mobile)
wireless systems.
- Data equipment. We design, build and operate data networks as well as
integrated voice and data networks. To meet our customers' needs, we
evaluate technologies such as Internet protocol, frame relay and ATM and
then we select, integrate and deploy the appropriate routers, switches,
access devices and other required equipment. The networks we build range
from small local area networks, which are communications networks over
small areas supporting less than 50 users, to wide area networks
supporting thousands of users and multiple technologies.
- Service and maintenance. We maintain and service our customers' networks
primarily through annual maintenance plans or through job-specific plans
based on time and materials. We remotely monitor and manage the voice and
data equipment and network connectivity of our customers 365 days a year,
24 hours a day through our advanced network management center. We are
able to resolve over 85% of all potential problems relating to data
equipment and over 25% relating to voice equipment without having to
dispatch a technician to the customer's site. When a skilled technician
is required, we have a staff of over 2,400 technicians available to meet
our customers' on-site service needs.
Professional services. We design, build and operate advanced voice, data
and integrated networks. Our professional services offerings include
outsourcing, advanced call center applications, network engineering and network
consulting. We will continue to expand these services as customer demand for
advanced communications solutions continues to grow.
- Outsourcing. We have over 400 engineers and on-site technicians to
support several large U.S. corporations which have elected to turn over
to us the management and operation of all or substantial portions of
their communications environments. Increasingly, these clients are
outsourcing their data networking requirements in addition to their
traditional voice communications requirements to expand network
capability, improve productivity and decrease costs.
- Advanced call center applications. Our call center applications team
consists of approximately 50 software applications developers and
engineers who design and
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implement customized call center solutions for customers with complex
requirements. We also maintain a computer telecommunications integration
lab with 30 specialists to test and develop custom call center solutions.
- Network engineering. We have approximately 175 network engineers with
expertise in data as well as integrated voice and data networking. This
group designs networking solutions, implements those solutions and
provides ongoing operational support utilizing standard technologies. We
also provide engineers on a fee-for-service basis for customers who seek
to augment their own resources.
- Network consulting. Our network consultants coordinate the operational
plans of our customers with their existing network capacity and
capability in order to determine the communications environment necessary
to meet their business needs. Our consultants provide a complete analysis
of existing network status and predict the impact of future changes on a
network and also develop sophisticated Internet applications.
Sale of carrier services. Our customers are increasingly demanding
"one-stop shopping" for communications services. We sell long distance, local
and Internet services offered by other carriers who are generally customers of
the Williams network. This enables us to provide a complete communications
solution for our customers. We currently have agreements with SBC, Bell
Atlantic, U S WEST (in Arizona only), UniDial and Concentric to sell their
services.
ISSUES RELATING TO OUR SOLUTIONS UNIT'S PERFORMANCE
In 1997, we and Nortel combined our equipment distribution businesses to
create what is now Solutions LLC. The rationale for the combination was to
achieve the benefits of increasing the scale and national reach of our sales,
engineering and technical support staffs and our installed customer base and to
strengthen our relationship with our primary vendor. The combination was also
expected to provide the cost benefits of eliminating redundant operating and
overhead expenses. However, we have experienced difficulties in integrating
Nortel's equipment distribution business with ours and in managing the increased
complexity of our business. These difficulties have prevented us from fully
realizing the expected benefits of the combination and have adversely impacted
our financial results. For a detailed discussion of these issues, see the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview -- Our solutions
unit."
VENDOR RELATIONSHIPS
We have agreements with the suppliers of the products and providers of the
services we sell to our customers. These agreements provide for our
distribution, resale or integration of products or our acting as agents for the
provider of services. Normally, we receive volume discounts off the list price
of the product or service we purchase from our vendors. We estimate that sales
of Nortel's products, consisting of primarily voice equipment, accounted for
approximately 40% of our solutions unit's revenues in 1998. We estimate that
product sales from the next three largest vendors accounted for approximately 6%
of our solutions unit's revenues in 1998.
Nortel. We distribute Nortel's voice, data and video products. We are the
largest U.S. distributor of Nortel's end-user voice products. The discounts we
receive vary based on our volume of purchases of a particular product line up to
a maximum discount. We have a commitment from Nortel that we may remain a
distributor of Nortel's products through at least 2002. While we have no
commitment to purchase a minimum number of products from Nortel, if we do not
maintain a minimum percentage of Nortel's products in our product mix, each
party has the option to change the ownership structure of Solutions LLC. See the
section below entitled "-- LLC Agreement with Nortel" for more information.
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Cisco. We are a large U.S. distributor of Cisco's full line of data
networking products. We also distribute Cisco's voice over Internet protocol
products.
Lucent. We are one of the largest U.S. distributors of the voicemail
products of Lucent's Octel messaging division. We also distribute Lucent's
advanced premises wiring products.
NEC. We are one of the largest non-affiliated U.S. distributors of NEC
voice equipment. We have an agreement with NEC that requires us to purchase from
April 1, 1999 through March 31, 2001 annual minimum amounts which aggregate to a
minimum of $44 million of their products. If we do not fulfill our commitment to
NEC, we are required to pay 30% of any amounts we do not purchase.
CUSTOMERS
We have approximately 100,000 customer sites across a broad range of
industries, including businesses as well as educational, governmental and
non-profit institutions. These customers consist of small businesses (ten or
more employees), small sites of larger companies and large enterprise campus
sites (e.g., AT&T and the University of Dayton). We are one of the largest
providers in the U.S. of installation and maintenance services of communications
systems to business sites of over 10,000 telephone lines. We believe that our
customer service will enable us to capture an increasing portion of each
customer's communications budget in the future. We are not dependent on any one
customer or group of customers to achieve our desired results. Our top 25
customers combined accounted for less than 10% of revenue during 1998, with no
one customer accounting for more than 1%. Our customers include: AT&T, Bankers
Trust Corporation, BP Amoco P.L.C., Countrywide Credit Industries, Inc., Hewlett
Packard Company, Johnson & Johnson, Kaiser Permanente, Lockheed Martin
Corporation, Merrill Lynch & Co., Pfizer, Inc., Prudential Individual Insurance
Group, Shell Exploration and Production Technology Company, Staples, Inc., T.
Rowe Price International Technologies, Inc. and Texaco Inc.
SALES
We operate approximately 110 sales and service offices in the U.S. and
Canada staffed with approximately 1,200 sales personnel. Approximately 100 of
our sales personnel focus on large, national and government accounts. In
addition, we have representatives dedicated to making regular telephone contact
with our existing customers, providing enhanced customer service and a channel
for merchandise sales.
COMPETITION
Our competition comes from communications equipment distributors, network
integrators and manufacturers of equipment (including in some instances those
manufacturers whose products we also sell). Our competitors include Norstan,
Inc., Anixter Inc., Integrated Network Services, Lucent, Siemens, Cisco Systems
and the equipment divisions of GTE, Sprint and the regional Bell operating
companies. Most equipment distributors tend to be regionally focused and do not
have our capability to service a nationwide customer base. We believe our
expertise in voice technologies and our ability to provide comprehensive
solutions give us an advantage over network integrators. We realize that we
operate in a highly competitive industry and face competition from companies
that may have significantly greater financial technical and marketing resources.
Some of our competitors have strong existing relationships with our customers
and potential customers resulting in a competitive disadvantage for us. We are
also at a disadvantage in that our costs exceed those of manufacturers, limiting
our ability to engage in price competition with such manufacturers. However,
most manufacturers of equipment are focused on selling their own equipment and
do not provide converged solutions.
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By having relationships with multiple vendors, we believe we can provide
the best solution for each customer's specific needs. We realize that an
interruption, or substantial modification, of our distribution relationships
could have a material adverse effect on our business.
LLC AGREEMENT WITH NORTEL
In April 1997, we purchased Nortel's equipment distribution business, which
we then combined with ours to create Solutions LLC. Nortel's equipment
distribution business included the combined net assets of Nortel's direct sales
subsidiary, Nortel Communications Systems, Inc., which includes Bell Atlantic
Meridian Systems, and TTS Meridian Systems, Inc.
We have a 70% interest and Nortel has a 30% interest in Solutions LLC. In
the event of a change of control of either us or Nortel, Nortel may require us
to buy, or we may require Nortel to sell, Nortel's entire interest in Solutions
LLC at market value. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC compared with all Nortel and similar
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
us to buy, or we may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.
After 1999, Nortel may require us to purchase up to one-third of its
interest in Solutions LLC. Nortel must retain a 20% interest in Solutions LLC
for a period of 5 years after the date on which Nortel's ownership interest is
reduced to 20%. As long as Nortel retains 20%, we must retain at least a 50%
interest in Solutions LLC. Each party has a right of first refusal to purchase
the other party's interest in the event of a sale to a third party of all or any
part of the party's interest. For more information about our relationship with
Nortel, see the section above entitled "-- Vendor relationships."
We and Nortel have representation in proportion to our respective ownership
interest on the management committee of Solutions LLC. We currently appoint
seven representatives and Nortel appoints three representatives to this
committee. As long as Nortel's interest in Solutions LLC is at least 20%, Nortel
must approve, among other things:
- any changes to the scope of Solutions LLC's business
- any non-budgeted capital expenditure over $5 million, non-budgeted
acquisition, divestiture or any other obligation over $20 million
- the incurrence of long-term debt in excess of equity
Until May 2000, we and Nortel will not engage in direct sales to end-users of
Nortel's voice products or any similar voice products in the U.S. and Canada
outside Solutions LLC.
OUR STRATEGIC INVESTMENTS UNIT
We make investments in, or own and operate, domestic and international
businesses that create demand for capacity on the Williams network, increase our
service capabilities, strengthen our customer relationships, develop our
expertise in advanced transmission electronics or extend our reach.
STRATEGY
Our objectives for our strategic investments unit are:
- To continue to expand our international presence
- To continue to invest in companies that increase demand for the products
and services of our network and solutions units
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- To make and manage and, where appropriate in the case of non core
businesses, dispose of investments to increase profitability
- To secure cost-effective access to needed products and services
DOMESTIC
Vyvx. We own Vyvx, a leading provider of integrated fiber optic, satellite
and teleport video transmission services. Through Vyvx, we have gained
experience in multimedia networks and have established high-speed connectivity
to the major news and sports venues throughout the country. Vyvx's broadcast
customers include all major broadcast and cable television networks, news
services and professional and collegiate sports organizations. In 1998, Vyvx
delivered the video and audio signals from live events to television networks
for approximately 85% of all major league sports events. Vyvx also distributes
advertisements and other media to local television stations.
While Vyvx has over approximately 2,000 active customers, approximately 40%
of its total revenue is derived from its top ten customers. Its largest customer
accounts for approximately 19% of its total revenues. Competition is based
primarily on service quality and reliability and network reach and, to a lesser
extent, on price. Vyvx provides superior customer service and quality and
extensive domestic reach. Our competitors include some of the largest domestic
and international communications companies, which have greater financial
resources and name recognition. We are at a disadvantage in international
broadcasting because our competitors have greater international presence.
Concentric. Concentric Network Corporation is a provider of Internet-based
virtual and private networking services to business customers. We currently own
4,633,716 shares, or 11.5%, of Concentric's common stock, which we acquired over
the past two years for an aggregate of approximately $41.5 million. We also own
warrants to purchase an additional 710,036 shares of Concentric's common stock
at an exercise price of $3 per share by June 2002. Prior to March 31, 2002, we
may also be required to purchase up to 906,679 shares at the current market
price so long as such purchase would not violate any law or regulation or
otherwise have a material adverse effect on our company. Concentric has agreed
to purchase at least $21 million of services and equipment from us prior to
December 1, 2002. Through at least 2007 and for so long as we own at least 5% of
Concentric's common stock, we are Concentric's preferred provider of
communications equipment and long distance multimedia network services. As a
preferred provider, we retain a right of last refusal to provide these services
so long as the equipment and services are competitive to the market in
technology and price. During this period, Concentric must first try to buy all
services and equipment it requires from us if we provide the products Concentric
requires. Our solutions unit has also entered into an agreement with Concentric
which provides that we will market and resell Concentric's telecommunications
services in the U.S. Our investment in Concentric allows us to better understand
the requirements of Internet service providers so that we can scale these
service offerings to better serve our customers. We are discussing with
Concentric an expansion of our commercial relationship but such discussions are
in preliminary stages.
UniDial. UniDial Communications, Inc. is a reseller of long distance and
other communications products, including frame relay, Internet and conferencing
services. In October 1998, we purchased shares of preferred stock of UniDial for
$27 million. Dividends accrue at the rate of 10% per annum beginning October 1,
1999. The shares are convertible into common stock under certain circumstances,
with our resulting percentage being subject to various formulas and timing
restrictions. We currently estimate that our preferred stock would convert into
approximately 12% of UniDial's common stock. We entered into an agreement with
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UniDial which provides for UniDial to buy all of its required carrier services
from us until October 2002, subject to UniDial's commitments existing at the
date of the agreement. We must price our services at competitive market levels.
UniDial may not terminate the carrier services agreement, which automatically
renews for successive two-year periods, as long as we continue to own all of our
UniDial preferred stock or own at least 5% of UniDial's common stock. We also
have an additional agreement with UniDial which provides for our solutions unit
to sell UniDial's products and services and for UniDial to handle the billing
and collection relating to our solutions unit's sales of UniDial's services. Our
investment in UniDial allows us to better understand the reseller market and
enables us to better serve our customers.
UtiliCom. UtiliCom Networks Inc. partners with utilities to create joint
ventures offering local exchange and other communications services. We currently
own 469,154 shares of UtiliCom's common stock, which represents a 14.5% interest
(9.7% on a fully-diluted basis), though we expect our interests to be reduced to
6.7% (5.9% on a fully-diluted basis) in 1999 upon UtiliCom's receipt of
additional financing. We have provided a $1 million loan to UtiliCom that
matures in May 2003, which we may convert to UtiliCom common stock in the event
of an initial public offering of UtiliCom's common stock. We also provided an
additional $4 million loan that matures in June 1999. We hold 200,000 warrants
that are exercisable to purchase UtiliCom common stock at $3 per share. In
exchange for our financing and investments, UtiliCom has agreed to use
reasonable best efforts to utilize our communications services and equipment and
to cause each of its joint ventures to designate us as its vendor as long as we
offer the equipment and services on competitive terms. In addition, we and
UtiliCom agreed to market each other's products and services to each other's
customers. UtiliCom's first joint venture partner is a subsidiary of SIGCORP,
Inc., a utility in Evansville, Indiana. The new venture is preparing to provide
telephony and data services, Internet services and cable television services to
business and residential customers.
Other. We also own Telemetry and ChoiceSeat. Telemetry provides wireless
remote monitoring and meter reading equipment and related services to industrial
and commercial customers, including Williams. ChoiceSeat deploys touch-screen
display units installed on stadium seats which provide access to statistics,
different views of the field, player- and venue-related information and access
to current information from other sports events.
INTERNATIONAL
On May 27, 1999, Williams contributed to us interests in communications
ventures in Brazil (ATL), Australia (PowerTel) and Chile (MetroCom). We are
responsible for any capital or other commitments which Williams had related to
these interests. Williams has granted us an option to acquire its interest in a
holding company whose subsidiaries are communications service providers in
Brazil (Algar). We may acquire additional interests in these and other
international ventures in the future.
ATL. ATL-Algar Telecom Leste S.A. was formed in March 1998 to acquire the
concession for B-band cellular licenses in the Brazilian states of Rio de
Janeiro and Espirito Santo. Before Williams contributed its interest in ATL to
us, ATL was owned by Williams, SKTI-US LLC and Algar Telecom S/A. As of March
31, 1999, Williams owned a 55% direct interest in ATL and an indirect interest
in ATL through its ownership in SKTI-US LLC. Before Williams contributed its
interest to us, SKTI-US LLC was owned by Williams and SK Telecom Co., Ltd.,
Korea's largest wireless telecommunications provider.
We obtained from Williams its option to acquire SK Telecom's interest in
SKTI-US LLC once permitted under Brazilian regulations. In 1998, Williams
acquired a 20% non-voting economic interest in ATL. Also in 1998, SKTI-US LLC
acquired a 10% economic interest,
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representing a 30% voting interest, in ATL. On March 25, 1999, Williams
purchased from Algar for $265 million an additional 35% economic interest,
representing a 19% voting interest, in ATL. This investment reduces Algar's
investment to a 35% economic interest, representing a 51% voting interest, in
ATL. As of March 31, 1999, Williams' investment in ATL totaled $415 million.
On March 25, 1999, the shareholders of ATL, including Williams, pledged 49%
of their common ATL stock and all of their preferred ATL stock as collateral for
a U.S. dollar-denominated $521 million loan from Ericsson Project Finance AB to
ATL. The loan matures on March 25, 2002.
We and Williams have held preliminary discussions concerning the
possibility of our increasing our ownership in ATL through our purchase from
Algar of Algar's investment in ATL. There is no assurance that these discussions
will result in any agreement.
ATL provides digital cellular services in the Brazilian states of Rio de
Janeiro and Espirito Santo, covering a population of approximately 16.1 million
inhabitants. ATL started commercial operations on January 15, 1999 and had
approximately 340,000 subscribers as of March 31, 1999. ATL's only cellular
competitor in these areas is Tele Sudeste Celular Participacoes S.A., a former
subsidiary of Telebras currently controlled by a consortium led by Telefonica de
Espana. We believe these areas to be particularly attractive because of the high
unsatisfied demand for cellular services, large population base and relatively
high level of income per capita when compared to other Brazilian regions. ATL's
strategy is based on rapidly deploying a high-quality, 100% digital cellular
network, offering a broad range of enhanced services and providing excellent
customer service.
Algar. Williams currently owns a 20% equity interest in Algar. Algar S.A.
Empreendimentos e Participacoes, a Brazilian conglomerate, owns 74% of Algar.
The remaining 6% of Algar is owned by the International Finance Corporation.
We have the right during the period from January 1, 2000 through January 1,
2001 to purchase all of Williams' equity and debt investments in Algar and any
interests in ATL that Williams acquires at the net book value of Williams'
investment in Algar and ATL at the time of the purchase. At March 31, 1999, this
net book value was approximately $155 million. The purchase price is payable in
shares of Class B common stock valued at the average closing sale price per
share of our common stock over the twenty trading-day period prior to the
purchase.
Williams purchased the 20% economic interest in Algar, representing a 5%
voting interest, in January 1997 for approximately $65 million. In April 1998,
Williams invested an additional $100 million in the form of a redeemable
convertible bond. The bond bears interest at an annual rate of 10% compounded
quarterly in U.S. dollars and is convertible at any point over the next three
years. After the conversion of the bond, Williams would own an approximately 33%
economic interest, representing a 21% voting interest in Algar. Beginning in
January 2002 and until an initial public offering of Algar, Williams has a right
to sell its entire interest in Algar for at least the amount of Williams'
investment plus interest. Williams has the ability to maintain its ownership
level in Algar in the event of capital increases.
Algar's main communications subsidiaries and investments as of March 31,
1999 include:
- 35% of ATL
- 70.9% of Companhia de Telecomunicacoes do Brasil Central
- 39.7% of Tess S.A.
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Other majority-owned subsidiaries of Algar include companies involved in
cable television services, design, maintenance and construction of
communications networks and provision of long distance services.
Companhia de Telecomunicacoes do Brasil Central provides local telephone
and cellular services in parts of the states of Minas Gerais, Sao Paulo, Goias
and Mato Grosso do Sul, covering 90,000 square kilometers with a population of
approximately 2.5 million people. This area of Brazil has recently experienced
higher rates of economic development than other regions of Brazil. As of
December 31, 1998, Companhia de Telecomunicacoes do Brasil Central had
approximately 403,000 fixed telephone lines in service and approximately 127,000
cellular subscribers.
Tess provides digital cellular services in Sao Paulo state outside the city
of Sao Paulo, covering a population of approximately 16.3 million inhabitants,
under a concession purchased from Brazil's federal government in 1997. We
believe this to be an attractive area because of the low penetration of fixed
telephone lines and the steady demand for telephone service. Tess's other
stockholders are Telia AB, the largest telecommunications operator in Sweden,
and Eriline Celular, a subsidiary of the Brazilian Eriline group. Tess began to
provide cellular service in December 1998.
[OWNERSHIP STRUCTURE OF STRATEGIC INVESTMENTS IN BRAZIL AS OF MARCH 31, 1999
SUBSIDIARIES FLOW CHART]
PowerTel. In August 1998, Williams and a joint venture owned by three
large Australian electric utilities purchased equity interests in PowerTel
Limited (previously known as Spectrum Network Systems Limited), a public company
in Australia. Williams has contributed its interests in PowerTel to us.
PowerTel plans to build, own and operate communications networks serving
the three cities of Brisbane, Melbourne and Sydney and plans to provide local
services in the central business
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districts of these cities. The three Australian utilities have entered into a
20-year agreement with PowerTel which allows PowerTel to use the utilities'
ducts and to lay fiber optic cable alongside their rights-of-way between the
cities. PowerTel's strategy is to provide high-quality, low-cost local voice,
data and Internet services to the commercial and carrier markets commencing in
the second half of 1999.
We currently own 159,574,468 shares, or 35%, of the common stock of
PowerTel and 31,914,894 shares, or 100%, of convertible cumulative preferred
stock of PowerTel. Our total investment represents a 36% economic interest in
PowerTel, which Williams purchased for 90 million Australian dollars. The
convertible cumulative preferred stock is convertible into an equivalent number
of shares of common stock at our option at any time until August 2003. We
currently hold a majority of PowerTel's board seats, are entitled to elect the
majority of the directors of PowerTel, to appoint the executive officers of
PowerTel and to operate the company. We are required to invest an additional 60
million Australian dollars in cash by February 2000 in PowerTel for 127,659,574
shares of convertible cumulative preferred stock. Our ownership in PowerTel will
increase to 45% after we have made all of our 60 million Australian dollar cash
contribution. We also have options to purchase 44,680,851 shares of common
stock, which would increase our interest by 3%, at an exercise price of 0.47
Australian dollars per share. These options are exercisable at any time until
August 2003. We also have a 2.4% ownership interest in PowerTel through an
earlier investment made by Williams.
MetroCom. On March 30, 1999, Williams acquired a 19.9% equity interest in
MetroCom S.A. which it has contributed to us. MetroCom is a Chilean company
formed to build, own and operate a communications network providing local,
Internet, data and voice services to businesses and residences in the Santiago
metropolitan area. The remaining 80.1% of MetroCom is owned by MetroGas S.A., a
company which is constructing a natural gas distribution system throughout the
Santiago metropolitan area. MetroGas' stockholders are several large
international and Chilean electric utilities and energy companies. MetroGas has
granted MetroCom the right to utilize its rights-of-way throughout Santiago.
MetroCom's strategy is to provide high-quality, low-cost local, Internet, data
and voice services and to focus on the commercial and high-end residential
markets. MetroCom plans to complete its fiber optic network and plans to
commence services in late 1999.
We also have warrants to purchase shares of MetroCom's common stock which
would increase our interest to 50%. Williams purchased the common stock and the
warrants for $24.5 million. Williams employees occupy the chief executive
officer and certain other key management positions.
STRATEGIC ALLIANCES
We enter into strategic alliances with communications companies in order to
secure long-term, high-capacity commitments for traffic on the Williams network
and to enhance our service offerings. The most significant of these alliances
are described briefly below.
SBC
SBC is a communications provider in the U.S. with 1998 revenues of
approximately $28.8 billion. SBC currently provides local services in the south
central region of the U.S. and in California, Nevada and Connecticut. SBC has a
pending agreement to acquire Ameritech, a communications provider in the Midwest
with 1998 revenues of approximately $17.2 billion.
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On February 8, 1999, we entered into agreements with SBC under which:
- SBC must first seek to obtain domestic voice and data long distance
services from us for 20 years
- we must first seek to obtain select international wholesale services and
various other services, including toll-free, operator, calling card and
directory assistance services, from SBC for 20 years
- we and SBC will sell each other's products to our respective customers
and provide installation and maintenance of communications equipment and
other services
For the services each must seek to obtain from the other, the prices
generally will be equal to the cost of the product or service plus a specified
rate of return. However, these prices cannot be higher than prices charged to
other customers and in some circumstances cannot be higher than specific rates.
If either party can secure lower prices for comparable services which the other
party will not match, then that party is free to utilize the lowest cost
provider.
Both we and SBC can provide services or products to other persons. Each
party may also sell or utilize the products or services purchased from the other
to provide products or services to other persons. However, if SBC establishes a
wholesale distribution channel to resell the network capacity purchased from us
to another provider of carrier services, we have the right to increase the price
we charge SBC for the services SBC resells in this manner. While the terms of
our agreements with SBC are intended to comply with restrictions on SBC's
provision of long distance services, various aspects of these arrangements have
not been tested under the Telecommunications Act.
We and SBC have agreed on a mechanism for the development of projects which
would allow the interconnection of the SBC network with the Williams network
based on the unanimous decision of committees composed of an equal number of
representatives from our company and SBC. If a committee does not approve a
project, both we and SBC have the right, subject to certain exceptions, to
require the other party to develop a project in exchange for payment of the
direct costs and cost of capital required to complete the project or pursue it
on its own. In addition, upon SBC receiving authorization from the FCC to
provide long distance services in any state in its traditional telephone
exchange service region, SBC has the option to purchase from us at net book
value all voice or data switching assets which are physically located in that
state and of which SBC has been the primary user. The option must be exercised
within one year of the receipt of authorization. Williams then has one year
after SBC's exercise of the option to migrate traffic, install replacement
assets and complete other transition activities. This purchase option would not
permit SBC to acquire any rights of way we use for the Williams network or other
transport facilities which we maintain.
Upon termination of the alliance agreements with SBC, SBC has the right in
certain circumstances to purchase voice or data switching assets (including
transport facilities) of which SBC's usage represents 75% or more of the total
usage of these assets.
SBC may terminate the provider agreements if any of the following occurs:
- SBC does not acquire Ameritech or if regulators impose conditions on the
acquisition that SBC refuses to accept
- we begin to offer retail long distance voice transport or local exchange
services on the Williams network except in limited circumstances
- we materially breach our agreements with SBC causing a material adverse
effect on the commercial value of the relationship to SBC
- we have a change of control
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- SBC acquires an entity which owns a nationwide fiber optic network in the
U.S. and determines not to sell us long distance transport assets
We may terminate the provider agreements if any of the following occurs:
- SBC has a change of control
- there is a material breach by SBC of the agreements, causing a material
adverse effect on the commercial value of the relationship to us
Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher.
On March 23, 1999, the U.S. Department of Justice completed its antitrust
review of the proposed merger of SBC and Ameritech. The Department of Justice
approved the merger subject to a consent decree agreed to by the parties that
the companies would sell one of their overlapping wireless systems in St. Louis,
Chicago and some other portions of Illinois. On April 5, 1999, Ameritech
announced its agreement with GTE to sell GTE these overlapping wireless systems
and thus satisfy the consent decree's condition to completing the merger of SBC
and Ameritech. On April 8, 1999, the Public Utilities Commission of Ohio
approved the merger, subject to certain conditions agreed to by SBC and
Ameritech. The Indiana Utility Regulatory Commission has asserted its
jurisdiction to approve the proposed merger. On June 4, 1999, SBC and Ameritech
appealed that decision to the Indiana Court of Appeals. The Indiana Utility
Regulatory Commission has scheduled hearings and a briefing schedule to
determine whether the proposed merger is in the public interest. The merger must
still be approved by the FCC and the Illinois Commerce Commission, which
generally have statutory mandates to review competition issues as well as other
aspects of the public interest related to the merger. These regulatory agencies
may either approve, approve subject to certain conditions imposed on the
companies, or deny approval of the merger. Following discussion with the staff
of the FCC, SBC and Ameritech proposed certain conditions to the merger. On July
1, 1999, the FCC asked for public comment on the conditions and expects to vote
on them in late summer 1999.
SBC has also entered into a securities purchase agreement with us and
Williams to purchase from us at the closing of the equity offering the number of
shares of our common stock equal to the lesser of:
(a) $500 million divided by the initial public offering price less the
underwriting discount or
(b) 10% of our outstanding common stock immediately following the
consummation of the equity offering and the SBC investment.
Furthermore, if the underwriters in the equity offering exercise their
over-allotment option, SBC will also purchase the number of additional shares of
common stock, if any, it would have been required to purchase if the closing of
the over-allotment option had occurred simultaneously with the closing of the
equity offering. The obligation to make the SBC investment is subject to certain
conditions at closing, including that the agreement under which we provide
network transport services to SBC is in full effect.
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In connection with its purchase of common stock SBC has agreed to certain
restrictions and will receive certain privileges, including the following:
- SBC has agreed not to acquire more than 10% of our common stock until at
least 2009
- SBC has agreed not to transfer to anyone except affiliates any of its
shares of common stock for a period of three and a half years, but this
transfer restriction provision will be terminated if we have a change of
control
- SBC has the right to nominate a member of our board of directors so long
as SBC retains more than a 5% equity interest in our common stock and has
obtained and continues to have relief in any state from Section 271 of
the Telecommunications Act
- SBC has a right to increase its interest to 10% of our outstanding common
equity if it does not achieve that limit immediately following the
consummation of the purchase of common stock described above
- SBC has a pre-emptive right to maintain its equity interest in our common
stock, which would be forfeited if it were not exercised more than once.
Following a second failure to exercise, SBC has a pre-emptive right to
maintain its newly diluted position so long as it maintains at least a 3%
interest in our common stock
- SBC also has registration rights in connection with its holdings
We have a call option to purchase all the shares of the common stock
acquired by SBC under the securities purchase agreement in the event of the
termination of certain agreements with SBC. Williams, so long as it has a 50%
interest in our common stock, has a right of first purchase with respect to any
shares of our common stock that SBC should decide to offer. We also have a right
of first purchase with respect to any shares of common stock not purchased by
Williams.
We are seeking to have SBC agree to reduce its investment from $500 million
to $425 million, in which event Telefonos de Mexico's investment would increase
from $25 million to $100 million.
INTEL
Intel Corporation is a manufacturer of chips and other computer, networking
and communications products. Intel recently announced the formation of its new
business, Intel Internet Data Services, to provide Internet web-hosting services
by building and managing data centers around the world.
On May 24, 1999, we and Intel, on behalf of Intel Internet Data Services,
entered into a long-term master alliance agreement. The alliance agreement
provides that we and Intel Internet Data Services will purchase services from
one another pursuant to a service agreement and create a co-marketing
arrangement, each of which will have shorter terms than that of the master
alliance agreement. The services we will provide include domestic transport
services and may also include Internet connectivity. Intel will provide web
hosting services pursuant to the co-marketing arrangement. Subject to our
meeting pricing, quality of service and other specifications, Intel Internet
Data Services will purchase a significant portion of its yearly domestic
transport requirements from us.
Intel also entered into a securities purchase agreement with us and
Williams to purchase the number of shares of our common stock equal to $200
million divided by the initial public offering price less the underwriting
discount. The parties' obligations under the securities purchase agreement are
subject to closing conditions, including that the alliance agreement is in full
effect, that at least $500 million is raised in the equity offering and that
necessary governmental approvals have been obtained.
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In connection with its purchase of common stock, Intel has agreed not to
transfer any of its shares of common stock to anyone except affiliates for a
period of eighteen months, but this transfer restriction provision will be
terminated if we have a change of control. In addition, the transfer restriction
does not prohibit Intel from participating in future registered offerings
initiated by us or from engaging in hedging transactions commencing six months
from the date of the equity offering. Intel also has registration rights in
connection with its holdings.
TELEFONOS DE MEXICO
Telefonos de Mexico, S.A. de C.V., the largest communications provider in
Mexico, currently provides long distance and local services primarily in Mexico.
On May 25, 1999, we entered into agreements with Telefonos de Mexico under
which, subject to any necessary U.S. and Mexican regulatory requirements:
- Telefonos de Mexico must first seek to obtain select international
wholesale services and various other services from us for 20 years
- we must first seek to obtain select international wholesale services and
various other services from Telefonos de Mexico for 20 years
- we and Telefonos de Mexico will sell each other's products to our
respective customers and will negotiate the terms under which both
parties will provide installation and maintenance of communications
equipment and other services for the other
For the services each must seek to obtain from the other, the prices
generally will be established to reflect the strategic relationship and
commitments made to each other, subject to any applicable law or regulations
establishing the prices. If either party can secure lower prices for comparable
services which the other party will not match, then that party is free to
utilize the lowest cost provider. Both we and Telefonos de Mexico can provide
services or products to other persons. Each party may also sell or utilize the
products or services purchased from the other to provide products or services to
other persons.
Certain of the provisions relating to the preferred provider relationship
and competitive pricing requirements will not be implemented until changes to
the international settlement system currently in place pursuant to U.S. and
Mexican regulations occur. Due to Telefonos de Mexico's dominant position in
Mexico, the international settlement system requires that Telefonos de Mexico
split its traffic terminating in the U.S. on a basis proportionate to that of
U.S. carriers terminating traffic in Mexico. We anticipate that changes will be
enacted by the end of 2000. See the section of this prospectus entitled
"Regulation -- Settlement costs for international traffic."
We and Telefonos de Mexico have agreed on a mechanism for the development
of mutually beneficial projects intended to interconnect the Williams network
with the Telefonos de Mexico network to provide seamless voice and data on both
a nationwide and international basis. Project decisions will be based on the
unanimous decision of committees composed of an equal number of representatives
from our company and Telefonos de Mexico.
Either party may terminate the alliance agreement if any of the following
occurs:
- the parties cannot execute implementing agreements within a specified
amount of time
- specified agreements to which Telefonos de Mexico is a party are not
terminated prior to the equity offering
- the action, or failure to act, of any regulatory authority or the passage
of a law or regulation materially frustrates or hinders the purpose of
any of our agreements
- either party experiences a change of control
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One party may terminate the agreements if the other party materially
breaches them or is no longer able to deliver the products and services for a
period of 30 days.
Telefonos de Mexico has also entered into a securities purchase agreement
with us and Williams to purchase from us the number of shares of our common
stock equal to $25 million divided by the initial public offering price less the
underwriting discount. If SBC agrees to reduce its investment to $425 million,
Telefonos de Mexico's investment would increase to $100 million.
The obligation to make the Telefonos de Mexico investment is subject to
conditions at closing, including that the alliance agreement with Telefonos de
Mexico be in full effect.
In connection with its purchase of our common stock Telefonos de Mexico has
agreed to certain restrictions and will receive certain privileges, including
the following:
- Telefonos de Mexico has agreed not to acquire more than 10% of our common
stock for a period of 10 years
- Telefonos de Mexico has agreed not to transfer to anyone, except
affiliates, any of its shares of common stock for a period of 3 1/2
years, but this transfer restriction provision will be terminated if we
have a change of control
- Telefonos de Mexico has agreed that we have the right, for a period of
3 1/2 years, to repurchase our stock at market value less the
underwriter's discount if the alliance agreement is terminated for any
reason other than a breach by us
Telefonos de Mexico also has registration rights in connection with its
holdings.
We have a call option to purchase all the shares of the common stock
acquired by Telefonos de Mexico under the securities purchase agreement in the
event of the termination of certain agreements with Telefonos de Mexico.
Williams, for so long as it has a 50% interest in our common stock, has a right
of first purchase with respect to any shares of common stock not purchased by
our company.
METROMEDIA FIBER NETWORK
Metromedia Fiber Network is currently constructing local fiber optic
networks in 11 U.S. cities including New York, Boston, Philadelphia, Chicago,
Washington, D.C., Dallas, Houston, Atlanta, Seattle, Los Angeles and San
Francisco. Metromedia has indicated that it may announce additional cities for
its network during the next year. On May 21, 1999, we entered into two memoranda
of understanding with Metromedia under which we each agree to enter into 20-year
agreements with the other, providing for the following:
- Metromedia will lease to us dark fiber of up to 3,200 route miles on
its local networks, six to 96 fibers per segment, and will provide us
with maintenance services and dark fiber connectivity to approximately
250 points of presence and data centers in exchange for approximately
$317 million payable by us over the duration of the agreement
- we will lease to Metromedia six dark fibers over substantially all of
the Williams network and provide colocation and maintenance services
in exchange for approximately $317 million payable by Metromedia over
the duration of the agreement
Lease and maintenance payments will be based on the number of fiber miles
leased. We will lease fiber from Metromedia in all 11 of its current
metropolitan areas. In addition, we will have the right to select future
Metromedia market areas where we will lease fiber, when and if such cities are
announced. We will begin leasing fiber on constructed segments of the Metromedia
network upon acceptance by us in accordance with acceptance procedures as
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provided in the agreement. Leases of fiber on additional segments will begin
following construction and acceptance. We anticipate that we will begin to lease
fiber from Metromedia during 1999.
Metromedia will begin leasing fiber on constructed segments of the Williams
network upon acceptance by it pursuant to the acceptance procedures. Leases of
fiber on additional segments will begin following construction and acceptance.
We anticipate that Metromedia will begin to lease fiber from us during 1999.
WINSTAR
WinStar Communications, Inc. uses wireless technology to provide
high-capacity local exchange and Internet access services to companies located
generally in buildings not served by fiber optic cable. On December 17, 1998, we
entered into two agreements with WinStar under which:
- we have a 25-year right to use approximately 2% of WinStar's wireless
local capacity, which is planned to cover the top 50 U.S. markets, in
exchange for payments equal to $400 million over the next four years
- WinStar has a 25-year right to use four strands of our fiber optic cable
over 15,000 route miles on the Williams network, a transmission capacity
agreement with an obligation to lease specified circuits from us for at
least 20-year terms and an agreement for colocation and maintenance
services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years
WinStar has licenses from the FCC to operate in various frequencies in the
top 50 metropolitan markets in the U.S. WinStar has constructed approximately 60
hubs, or antenna sites, which are currently available to us. WinStar intends to
construct 270 hubs by the end of 2001 and we will have the ability to use all of
these hubs. We will pay WinStar the $400 million over the next four years as
WinStar completes construction of the hubs. As of March 31, 1999, we had paid
WinStar approximately $84 million.
We anticipate that the network fiber to be used by WinStar will be
completed in 2000. We will also be WinStar's preferred provider of domestic
communications requirements for 25 years. WinStar will pay us the $644 million
in equal monthly installments over the next seven years. As of March 31, 1999,
we had received approximately $15.3 million.
U S WEST
U S WEST, Inc. is a communications provider with operations currently in
the western region of the U.S. We entered into an agreement with U S WEST,
effective January 1998, which provides that our two companies will work together
to provide data networking services to a variety of customers. We also provide
various of our services to U S WEST.
INTERMEDIA
Intermedia Communications Inc. provides a wide range of local, long
distance and Internet services. In April 1998, Intermedia executed an agreement
providing for a 20-year right to use our nationwide transmission capacity for
approximately $450 million payable over 20 years. This amount represents the
present value of the minimum amount Intermedia will pay over the life of the
agreement. To date, we have received approximately $57 million from Intermedia.
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PROPERTIES
The Williams network and its component assets are the principal properties
which we currently operate. We lease portions of the network and related
equipment pursuant to our operating lease with a financial institution, which
supplies funds to construct the Williams network and purchase equipment. The
lease term is for five years with possible renewal for two additional one-year
terms. We have the rights to purchase, exchange and sell the leased property
during the lease term as well as to purchase the property at the end of the
lease term. The price at which we may purchase the property approximates its
original cost. In the event we do not purchase the property at the end of the
lease term, we are obligated to pay 89.9% of the original purchase cost of the
property. For more information regarding the operating lease agreement, see the
section of this prospectus entitled "Description of Indebtedness and Other
Financing Arrangements -- Asset defeasance program."
Our installed fiber optic cable is laid under various rights of way. We
have agreements in place for approximately 87% of the rights of way needed to
complete the Williams network. Almost all of our rights of way extend through at
least 2018. A significant portion of our rights of way are along Williams
pipeline easements.
We own or lease sites in approximately 100 U.S. cities on which we locate
or plan to locate transmission, routing and switching equipment. These sites
range in size from 2,000 square feet to 50,000 square feet and total
approximately 1,700,000 square feet. We also lease office space in various
locations including from Williams. We lease from Williams approximately
1,200,000 square feet of office space in Tulsa, Oklahoma and have entered into a
lease with Williams for an additional 350,000 square feet of office space to be
constructed. Our solutions unit occupies approximately 192,000 square feet of
office space in Houston, Texas which it subleases from Williams.
EMPLOYEES
As of June 30, 1999, excluding our unconsolidated strategic investments, we
had a total of 9,411 employees, 1,050 of whom were served by collective
bargaining agreements. The following shows the number of our employees broken
down by segment:
<TABLE>
<S> <C>
Network 1,199
Solutions 6,211
Strategic Investments 972
Corporate 1,029
-----
Total 9,411
=====
</TABLE>
LEGAL PROCEEDINGS
Class actions have been filed against other communications carriers which
challenge the carriers' rights to install and operate fiber optic systems along
railroad rights of way. Approximately 15% of our network is installed on
railroad rights of way. We are a party to litigation challenging our right to
use railroad rights of way over which we have installed approximately 28 miles
of our network. The plaintiff in this action is seeking to have this matter
certified as a class action. It is likely that we will be subject to other suits
challenging use of all of our railroad rights of way and that the plaintiffs
will also seek class certification. We cannot quantify the impact of such claims
at this time.
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REPORTS TO STOCKHOLDERS
We intend to furnish our stockholders annual reports containing audited
financial statements examined by our independent auditors and quarterly reports
containing unaudited financial statements for each of the first three quarters
of each fiscal year.
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REGULATION
GENERAL REGULATORY ENVIRONMENT
We are subject to federal, state and local regulations that affect our
product offerings, competition, demand, costs and other aspects of our
operations. Federal laws and regulations generally apply to interstate
telecommunications, including international telecommunications that originate or
terminate in the United States, while state laws and regulations apply to
telecommunications terminating within the state of origination. The regulation
of the telecommunications industry is changing rapidly, and varies from state to
state. Our operations are also subject to a variety of environmental, safety,
health and other governmental regulations. We cannot guarantee that future
regulatory, judicial or legislative activities will not have a material adverse
effect on us, or that domestic or international regulators or third parties will
not raise material issues with regard to our compliance or noncompliance with
applicable regulations.
The Telecommunications Act seeks to promote competition in local and long
distance telecommunications services, including by allowing entities affiliated
with power utilities entry into providing telecommunications services and by
allowing GTE and, subject to certain limitations and conditions, the regional
Bell operating companies' entry into providing long distance services. We
believe that the regional Bell operating companies' and other companies' entry
into providing long distance services will provide opportunities for us to sell
fiber or lease high-volume long distance capacity.
The Telecommunications Act allows a regional Bell operating company to
provide long distance services originating outside its traditional exchange
service area or from mobile services, and to own 10% or less of the equity of a
long distance carrier operating in its traditional service area. In addition,
Section 271 of the Telecommunications Act allows a regional Bell operating
company to provide long distance services originating in a state in its
traditional exchange service area if it satisfies several procedural and
substantive requirements. These include obtaining FCC approval upon a showing
that the regional Bell operating company has entered into, or under some
circumstances has offered to enter into, interconnection agreements which
satisfy a 14-point "checklist" of competitive requirements. On February 22,
1999, the United States Supreme Court issued an order confirming the FCC's
authority to adopt requirements for compliance with the checklist. This order
reversed an earlier decision by the U.S. Court of Appeals for the Eighth Circuit
that required the FCC to defer to state determinations as to certain elements of
the checklist. To date, the FCC has not granted any petitions by regional Bell
operating companies for entry and has denied several of these petitions. We
expect that additional petitions for entry will be filed, and that the regional
Bell operating companies will obtain approval to provide long distance services
in some states within the next two years.
Common carrier services to end-users and enhanced services providers are
subject to assessment for the FCC's Universal Service Fund, which assists in
ensuring the universal availability of basic telecommunications services at
affordable prices. The FCC has proposed assessments for the second quarter of
1999 of approximately 3.6% of gross interstate and 0.6% of gross intrastate
end-user revenues, which are slightly lower than previous assessments. These
assessments may be higher in subsequent years. Appeals of the FCC's universal
service order are pending in the U.S. Court of Appeals for the Fifth Circuit.
Reversal of the FCC's order or changes in the rules, especially changes that
affect the revenues on which universal service assessments are based, could have
an adverse impact on interstate carriers, including us. Certain of our services
may be subject to those assessments, which would increase our costs, and we may
also be liable for assessments by state commissions for state universal service
programs.
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FEDERAL REGULATION
Under the FCC's rules, we are a non-dominant carrier. Generally, the FCC
has chosen not to closely regulate the charges or practices of non-dominant
carriers. Although the FCC has the power to impose more stringent regulatory
requirements on us, we believe that the FCC is unlikely to do so. We are subject
to the regulatory requirements applicable to all common carriers, such as
providing services without unreasonable discrimination and charging reasonable
rates.
Federal regulation affects the cost and thus the demand for long distance
services through regulation of interstate access charges, which are the local
Bell operating companies' charges for use of their exchange facilities in
originating or terminating interstate transmissions. The FCC ordered a
multi-year transition in the structure of interstate access charges, leading to
lower per-minute charges. The FCC may adopt further changes in the structure of
interstate access charges in the future. The FCC also regulates the levels of
interstate access charges through price caps for larger local Bell operating
companies and other rate regulation for smaller local Bell operating companies.
The FCC may adopt rules allowing local Bell operating companies further
flexibility in setting interstate access charges in the future, especially for
high-speed data lines. On May 21, 1999, the U.S. Court of Appeals for the
District of Columbia Circuit reversed and remanded for reconsideration by the
FCC the 6.5% inflation offset in the current price cap rules.
The FCC has adopted rules for pricing the local Bell operating companies'
unbundled network elements and services to competitive local exchange carriers,
which use these network elements and services to interconnect with long distance
carriers. These regulations affect the growth opportunities for some of our
customers and thus demand for our services. In January 1999, the United States
Supreme Court upheld the FCC's authority to adopt pricing rules for unbundled
network elements and resale by competitive local exchange carriers. However, the
Supreme Court instructed the FCC to reconsider an earlier determination
regarding the extent to which local Bell operating companies are required to
unbundle elements of their networks and provide those unbundled networks to
competitive local exchange carriers. In addition, certain local Bell operating
companies have indicated in papers filed with the U.S. Court of Appeals for the
Eighth Circuit that they will seek additional judicial review of the FCC's
pricing rules on substantive grounds.
The FCC has to date treated Internet service providers as enhanced service
providers rather than common carriers. As such, Internet service providers have
been exempt from various federal and state regulations, including the obligation
to pay access charges and contribute to universal service funds. On February 25,
1999, the FCC adopted an order in which it determined that calls to Internet
service providers are interstate in nature and proposed rules to govern
compensation to carriers for transmitting these calls. Although the FCC does not
intend to require Internet service providers to pay access charges or to
contribute to universal service funds, the FCC's order could affect the costs
incurred by Internet service providers and the demand for the offerings of some
of our customers. Several appeals of the order have been filed in the U.S. Court
of Appeals for the District of Columbia Circuit.
The FCC has adopted rules for a multi-year transition to lower
international settlements payments by U.S. common carriers. We believe that
these rules are likely to lead to lower rates for certain international services
and increased demand for these services provided by certain of our customers.
The result is likely to be increased demand for capacity on the U.S. facilities,
including the Williams network, which provide these services.
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Rules adopted by the FCC in 1996 and 1997, which are subject to pending
appeals and a stay, could impose significant limits on the ability of carriers
to maintain tariffs for interstate long distance services and to rely on tariffs
to state the prices, terms and conditions under which they offer interstate
services. Additional rules, adopted by the FCC on March 18, 1999, will require
long distance carriers to make specified public disclosures of their rates,
terms and conditions for domestic interstate services, with the effective date
for these rules delayed until a court decision on the appeal of the FCC's 1996
detariffing order. These regulations could affect how some of our customers
provide services and the demand for their offerings.
STATE REGULATION
The Telecommunications Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.
Generally, we must obtain and maintain certificates of authority from
regulatory bodies in states in which we offer intrastate services. In most
states, we must also file and obtain prior regulatory approval of tariffs for
our intrastate services. Certificates of authority can generally be conditioned,
modified or revoked by state regulatory authorities for failure to comply with
state law or regulations. Fines and other penalties also may be imposed for such
violations. We are currently authorized to provide intrastate services in 37
states. We believe that most states do not regulate our provision of dark fiber.
If a state did regulate our provision of dark fiber, we could be required to
provide dark fiber in that state pursuant to tariffs, and at regulated rates.
State regulatory commissions generally regulate the rates local Bell
operating companies charge for intrastate services, including intrastate access
services paid by providers of intrastate long distance services. Intrastate
access rates affect the costs of carriers providing intrastate long distance
services and demand for the services we and other carriers provide. Under the
Telecommunications Act, state commissions have jurisdiction to arbitrate and
review negotiations between local Bell operating companies and competitive local
exchange carriers regarding the prices local Bell operating companies charge for
interconnection of network elements with, and resale of, services by competitive
local exchange carriers; however, the U.S. Supreme Court has upheld the FCC's
authority to adopt rules which the states must apply when setting these prices.
A state may also impose telecommunications taxes, and fees related to the
support for universal service, on providers of services within that state.
LOCAL REGULATION
We are occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand our fiber optic network
using municipal rights of way. Termination or failure to renew our existing
franchise or license agreements could have a material adverse effect on us. In
some municipalities where we have installed or anticipate constructing networks,
we are required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear foot basis. We cannot guarantee that fees will remain
at their current levels following the expiration of existing franchises. In
addition, we could be at a competitive disadvantage if our competitors do not
pay the same level of fees as we do. However, the Telecommunications Act
requires municipalities to manage public rights of way in a competitively
neutral and non-discriminatory manner.
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OTHER
Our operations are subject to a variety of federal, state, local and
foreign environmental, safety and health laws and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use and transportation of hazardous materials, the emission and
discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites and
endangered species and the health and safety of our employees.
Although we monitor compliance with environmental, safety and health laws
and regulations, we cannot assure you that we have been or will be in complete
compliance with these laws and regulations. We may be subject to fines or other
sanctions imposed by governmental authorities if we fail to obtain certain
permits or violate the laws and regulations. We do not expect any capital or
other expenditures for compliance with laws, regulations or permits relating to
the environment, safety and health to be material in 1999 or 2000.
In addition, we may be subject to environmental laws requiring the
investigation and cleanup of contamination at sites we own or operate or at
third party waste disposal sites. These laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the
contamination. Although we own or operate numerous sites in connection with our
operations, we are not aware of any liability relating to contamination at these
sites or third party waste disposal sites that could have a material adverse
effect on our company.
FOREIGN REGULATION
BRAZIL
Communications service in Brazil has until recently been primarily provided
by operating subsidiaries of Telebras, a state-owned holding company. In 1997,
the General Telecommunications Act provided for the restructuring and
privatization of the communications industry in Brazil. In 1998, Telebras was
split into 12 different holding companies -- one long distance carrier, three
local landline companies, and eight cellular companies. A governmental
regulatory agency, Agencia Nacional de Telecomunicacoes, known as Anatel, was
created to regulate the newly privatized industry and to facilitate competition.
One aspect of the restructuring and privatization process is the issuance
of licenses, through a bid process, to competing privately-owned carriers.
Licenses for "B-Band" cellular companies, including ATL and Tess, were issued in
1997 and 1998. Each cellular concession is a specific grant of authority to
supply cellular services within a defined region. In the case of ATL, this
region consists of the states of Rio de Janeiro and Espirito Santo. In the case
of Tess, this region consists of the state of Sao Paulo outside the city of Sao
Paulo.
A cellular concession has been granted to each of ATL and Tess for an
initial term of 15 years which may be renewed for equal periods at the
discretion of Anatel. Currently within each area only one cellular company may
operate in Band A and one in Band B; there are no personal communications
service carriers. The cellular concessions and other regulations impose a range
of restrictions on the companies' operations, corporate governance and
shareholders, with penalties for noncompliance, including loss of license and
monetary fines.
Long distance service is regulated pursuant to the General
Telecommunications Act. In April 1998, the government issued a general granting
plan for licenses, which split the country into four telecommunications areas.
Areas I and II include most of the states of the country. Area III corresponds
to the state of Sao Paulo. Area IV covers international calls and long distance
calls throughout the whole country. The operators in Areas I and II are also
able to provide long distance calls but only within the boundaries of the states
inside each area.
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During 1999, the government of Brazil awarded through bid processes
licenses for other companies that will compete against the former Telebras
subsidiaries. Each company will be able to provide service in one of the four
areas. In 2000, the government may sell additional licenses in each wireless
market for personal communications service.
Each concession agreement establishes the service obligations for the
operator, based on the applicable legislation determined by Anatel. Anatel
defines maximum rates, but an operator can charge users lower rates. The rates
can be readjusted periodically but not less often than every 12 months. ATL and
Tess are subject to the rate parameters set out in their concession agreements,
based upon the bids they submitted to obtain the concessions. Cellular service
in Brazil is offered on a "calling party pays" basis, where the cellular
subscriber pays usage charges only for outgoing calls. Roaming agreements
between cellular carriers apply to services for subscribers outside of their
home regions.
Anatel also regulates cable television in Brazil. Each license is granted
for 15 years and renewable for equal periods. The service must be rendered
without discrimination, at reasonable prices and conditions and on a
non-exclusive basis. There is no specific regulation of rates for cable
services. There is a basic group of channels that must be provided to customers.
Competition for cable comes from microwave multichannel systems and satellite
television. Recently, bidding procedures took place for new licenses for both
cable and the microwave multichannel systems.
AUSTRALIA
On July 1, 1997, the Australian government opened all sectors of the
Australian communications industry to competition. Central elements of the new
regulatory regime include an unrestricted number of carrier licenses, increased
reliance on certain elements of the Australian Trade Practices Act and industry
self-regulation and retention of some carrier land access rights and statutory
immunities in relation to the construction of network facilities.
The Australian Competition and Consumer Commission is charged with most
competition-related regulatory functions and price control arrangements. The
Australian Communications Authority is responsible for regulating the
non-competition aspects of the telecommunications industry, including carrier
licensing, technical regulation, preselection, and enforcing industry standards,
universal service, spectrum management and numbering. There also are self-
regulatory authorities that recommend telecommunications services for regulation
to the Australian Competition and Consumer Commission and that develop industry
consumer, technical and operational codes.
A carrier license is required for the ownership of most transmission
infrastructure used to provide telecommunications services to the public.
PowerTel holds a carrier license and is subject to regulation by the Australian
Competition and Consumer Commission and the Australian Communications Authority.
PowerTel does not have any service coverage obligations. PowerTel does not
require any further regulatory approval for new services, except when new
services require new spectrum or equipment licenses for operating radio
communication facilities such as mobile services or microwave links. Each
licensed carrier pays an annual fee to cover the costs of industry regulation
based on a portion of the carrier's revenues.
Under the regulations, access to particular regulated carriage services and
other services which facilitate the supply of those regulated services must be
provided between operators on non-discriminatory technical and operational terms
and, in some circumstances, at cost-based prices. The Australian Competition and
Consumer Commission determines which services are regulated. Other services may
be supplied on commercially negotiated terms subject to the
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Australian Trade Practices Act. Any transmission capacity of 2 or more megabits
per second is regulated on all routes except between Sydney, Canberra and
Melbourne.
The Australian Competition and Consumer Commission is currently considering
regulating local call resale and local network unbundling. Regulation of
switched interconnection at the local exchange level would allow PowerTel and
other competitors to reduce their access costs by interconnecting with the
Telstra Corporation Limited network closer to the customer. The Australian
Competition and Consumer Commission has issued a draft report in favor of
regulating noncompetitive access services with pricing based on total service
long-run incremental cost.
Prior to July 1, 1997, carriers had extensive rights to install facilities
on land without the consent of the owner and with immunity from state and
territory environmental and planning laws. Under the new regulatory regime,
carriers, including PowerTel, must now generally comply with state and territory
environmental planning and property laws.
Telstra, the current national universal service provider, is required to
ensure that the standard telephone services, pay phones and any other regulated
services are reasonably accessible to all Australians on an equitable basis. All
carriers are required to contribute to the costs of providing universal service.
The Australian Communications Authority has required all carriers and carriage
service providers to guarantee timely service to customers. The Australian
government has proposed amendments to the communications legislation to
strengthen competitive and consumer safeguards. The proposals include enabling
the Australian Competition and Consumer Commission to make binding legal
directions to parties to facilitate access negotiations, to publicly disclose or
require the disclosure of cost information and to specify the terms on which
carriers must disclose network planning information to each other. There are
also proposals to streamline the Australian Competition and Consumer
Commission's ability to act when it believes that anti-competitive conduct is
taking place. There can be no assurance that the proposed amendments will be
enacted in their current form or at all.
PowerTel currently has entered into a facilities access agreement with
Telstra for access to Telstra's ducts, underground facilities and equipment
buildings. PowerTel also obtains services from Telstra through wholesale/resale
products, and is in the process of negotiating an agreement covering Telstra's
wireline and mobile originating and terminating access services.
Although the regulatory regime is structured to encourage new entrants,
PowerTel as well as other industry participants and the Australian Competition
and Consumer Commission have expressed the view that Telstra's interconnect and
wholesale pricing is too high. The Australian Competition and Consumer
Commission does not currently have power to set interconnect prices generally.
The Australian Competition and Consumer Commission is only empowered to settle
disputes between specific parties in relation to a limited number of services.
Even where the Australian Competition and Consumer Commission is able to
arbitrate, in practice to date it has been a lengthy process. The consequence of
the current pricing structure is to encourage new entrants such as PowerTel to
construct alternative infrastructures. The current pricing also adversely
impacts the ability of new entrants without significant infrastructure to
substantially discount prices below those of incumbent network owners.
PowerTel has entered into an asset use agreement with three electric
utilities which are indirect stockholders of PowerTel. Each agreement provides
PowerTel with access to each utility's facilities (ducts, poles, fiber optic
cable, towers, etc.) for the installation of telecommunications equipment.
PowerTel also has entered into a reseller agreement with each of these utilities
under which each utility is appointed a non-exclusive reseller of PowerTel's
telecommunications services to certain customers. The agreement provides for the
utility to be
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able to resell the full range of PowerTel's services, including new services
which become available from time to time, subject to any prohibitions on resale
in third-party agreements.
There are two marketing database agreements between each of the utilities
and PowerTel. The first provides PowerTel with access to each utility's database
of electricity customers to market telecommunications services. The second
provides each utility access to PowerTel's customer database to market
electricity. These agreements are subject to any applicable privacy laws.
CHILE
The process of privatization and opening up of monopoly telecommunications
markets in Chile began in 1982 with the General Telecommunications Law, which
allowed companies to provide service and develop telecommunications
infrastructure without geographic restriction or exclusive rights to serve.
Chile currently has a competitive, multi-carrier system for long distance
and local services. There is no regulatory limit on the number of concessions
that could be granted to companies that would compete against MetroCom.
Currently, there are five local service providers in Santiago. The largest
providers of local telecommunications services in Santiago are Compania de
Telecomunicaciones de Chile, Telefonica Manquehue and CMET.
MetroCom holds an intermediate service concession for the installation,
operation, and exploitation of a high-capacity fiber optic cable network in
Santiago and the towns surrounding it. Intermediate services are provided via
networks to satisfy the transmission or exchange service requirements of other
telecommunications providers. The concession is for a renewable 30-year term.
MetroCom's concession provides for network construction to end on December 23,
1998 and service to begin on January 23, 1999. The company requested an
extension of these terms, which was granted by the telecommunications authority
but is pending before the Republic Comptrollership's Office for formal amendment
of the concession.
The telecommunications law states that prices should be determined by
market forces in competitive markets; in markets with one dominant firm, maximum
rates are determined by the regulatory authorities. The regulatory authority has
declared that the conditions prevailing in the local (including Santiago) and
long distance markets, as well as in the market for intermediate services,
require rates to be determined by the regulatory authority. The maximum rate
structure is determined every five years.
Local service providers with concessions are obligated to provide service
to any customer who requests service within their service area, or to any
customer outside the service area of all concessionaires who is willing to pay
for an extension to get service. Local providers must also give long distance
service providers equal access to their network connections.
SETTLEMENT COSTS FOR INTERNATIONAL TRAFFIC
International switched long distance traffic between two countries
typically is exchanged under correspondent agreements between carriers each
owning network transmission facilities in their respective countries.
Correspondent agreements generally provide for, among other things, the
termination of traffic in, and return traffic to, the carriers' respective
countries at a negotiated accounting rate. Settlement costs, typically one-half
of the accounting rate, are reciprocal fees owed by one international carrier to
another for transporting traffic on its facilities and terminating that traffic
in the other country. The FCC and regulators in foreign countries may regulate
agreements between U.S. and foreign carriers.
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The FCC's international settlements policy governs the settlements between
U.S. carriers and their foreign corespondents and prevents foreign carriers from
discriminating among U.S. carriers in bilateral accounting rate negotiations.
The policy requires
- the equal division of accounting rates
- non-discriminatory treatment of U.S. carriers
- proportionate return of inbound traffic
Agreements governed under the policy must be filed publicly with and
approved by the FCC. Recently, the FCC limited application of the policy, which
now applies only to U.S. carrier arrangements with certain foreign carriers with
market power in their respective countries. For example, U.S. carrier
arrangements with Telefonos de Mexico continue to be subject to the policy, but
U.S. carrier arrangements with a Telefonos de Mexico competitor in Mexico are
not subject to the policy. The FCC also recently decided to exempt certain
foreign routes from the policy, depending upon the ability of U.S. carriers to
terminate traffic on those routes at rates substantially below benchmarks set by
the agency. However, Mexico is not currently an exempted route. Other countries
have policies similar to that of the FCC.
Resale of international private lines allows carriers to bypass the
settlement rate system, and, therefore, the need to negotiate accounting rates
with foreign carriers with market power and obtain termination of international
traffic in the United States and foreign countries at substantially reduced
rates. The FCC's private line resale policy currently prohibits a carrier from
reselling international private leased circuits to provide switched services to
or from a country unless certain conditions are met.
Currently, Mexican carriers other than Telefonos de Mexico can engage in
such resales under FCC rules, but the Mexican regulator has not permitted such
resales. If Mexico approves such resales but the FCC continues to restrict
Telefonos de Mexico from engaging in such resales, competitors of Telefonos de
Mexico would be permitted to engage in low-cost termination of traffic between
the United States and Mexico, but Telefonos de Mexico would be precluded from
doing so. Recently, AT&T and Telefonos de Mexico agreed to an accounting rate of
$.38 per minute, which falls within the FCC's prescribed benchmark for Mexico.
Accordingly, it is possible that the FCC will soon permit such resales by
Telefonos de Mexico on the U.S.-Mexico route, which would allow Telefonos de
Mexico and its competitors to terminate traffic in Mexico and, through their
U.S. correspondents, the United States once Mexico allows such resales.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
prospectus concerning our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith E. Bailey........................ 56 Director
John C. Bumgarner, Jr. ................ 56 Director and Senior Vice President, Strategic
Investments
James R. Herbster...................... 57 Director
Howard E. Janzen....................... 45 President, Chief Executive Officer and Director
Michael P. Johnson, Sr................. 51 Director
Steven J. Malcolm...................... 50 Director
Jack D. McCarthy....................... 56 Director
Brian E. O'Neill....................... 63 Director
H. Brian Thompson...................... 60 Director (upon completion of the equity offering)
Roy A. Wilkens......................... 56 Director (upon completion of the equity offering)
David P. Batow......................... 47 General Counsel
Mark A. Bender......................... 34 Vice President and Chief Information Officer
Delwin L. Bothof....................... 54 Senior Vice President, Domestic Strategic Investments
Matthew W. Bross....................... 38 Senior Vice President and Chief Technology Officer
Gerald L. Carson....................... 59 Senior Vice President, Human Resources
Kenneth R. Epps........................ 42 Senior Vice President, Strategic Marketing
Lawrence C. Littlefield, Jr. .......... 61 Senior Vice President and Group Executive
Patti L. Schmigle...................... 40 Senior Vice President, Solutions
Scott E. Schubert...................... 46 Senior Vice President and Chief Financial Officer
Frank M. Semple........................ 47 Senior Vice President, Network
William G. von Glahn................... 55 Senior Vice President, Law
S. Miller Williams..................... 47 Senior Vice President and Senior Managing Director of
International Strategic Investments
</TABLE>
OUR DIRECTORS
Our restated certificate of incorporation provides that the number of
directors may be altered from time to time by a resolution adopted by our board
of directors. However, the number of directors may not be less than three.
Currently, we have eight directors on our board. Concurrently with the
completion of the offerings, we intend to add two independent directors to our
board of directors so that our board will consist of ten members. SBC will be
entitled to designate a director for our board after the closing of the SBC
investment so long as SBC retains more than a 5% equity interest in our common
stock and has obtained and continues to provide long distance services in states
within its traditional exchange service area.
Our restated certificate of incorporation provides for a classified board
of directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of that
class, except that the initial terms of the three classes expire in 2000, 2001
and 2002.
The following individuals are our directors. Each director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
Keith E. Bailey is the Chairman of the Board, President and Chief Executive
Officer of Williams. Mr. Bailey has held various officer level positions with
Williams and its subsidiaries since 1975 and has served as a director of
Williams since 1988. Mr. Bailey has been a director
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<PAGE> 108
of our company since 1994. Mr. Bailey's term as a director expires at the annual
stockholders' meeting in 2002.
John C. Bumgarner, Jr. is the Senior Vice President of Corporate
Development and Planning of Williams and President of Williams International
Company, a subsidiary of Williams. Mr. Bumgarner has held various officer level
positions with Williams since 1977. Mr. Bumgarner has been a director of our
company since 1997 and was named Senior Vice President, Strategic Investments of
our company in May 1999. Mr. Bumgarner's term as a director expires at the
annual stockholders' meeting in 2001.
James R. Herbster is the Senior Vice President of Administration of
Williams. Mr. Herbster has held various officer level positions with Williams
since 1981. Mr. Herbster has been a director of our company since 1997. Mr.
Herbster's term as a director expires at the annual stockholders' meeting in
2000.
Howard E. Janzen has been a director and the President and Chief Executive
Officer of our company since 1994. From April 1993 to December 1994, Mr. Janzen
served as Senior Vice President and General Manager of Williams Gas Pipelines
Central, Inc., an affiliate of Williams. Mr. Janzen has also held various other
management and officer level positions with Williams since 1979. Mr. Janzen also
serves on the board of directors of BOK Financial Corporation. Mr. Janzen's term
as a director expires at the annual stockholders' meeting in 2002.
Michael P. Johnson, Sr. is the Senior Vice President of Human Resources of
Williams and has been since May 1, 1999. Prior to joining Williams in December
1998 as Vice President of Human Resources, Mr. Johnson was a vice president of
human resources with Amoco Corporation, where he held various officer level
positions since 1991. Mr. Johnson has been a director of our company since May
1, 1999. Mr. Johnson's term as a director expires at the annual shareholders'
meeting in 2000.
Steven J. Malcolm is the President and Chief Executive Officer of Williams
Energy Services, a subsidiary of Williams. Mr. Malcolm has held various
management and officer level positions with subsidiaries of Williams since 1984.
Mr. Malcolm has been a director of our company since 1998. Mr. Malcolm's term as
a director expires at the annual stockholders' meeting in 2001.
Jack D. McCarthy is the Senior Vice President and Chief Financial Officer
of Williams. Mr. McCarthy has held various officer level positions with Williams
since 1986. Mr. McCarthy has been a director of our company since 1997. Mr.
McCarthy's term as a director expires at the annual stockholders' meeting in
2001.
Brian E. O'Neill is the President and Chief Executive Officer of each of
the interstate natural gas pipeline companies owned by Williams. Mr. O'Neill has
held various officer level positions with subsidiaries of Williams since 1988.
Mr. O'Neill also serves on the board of directors of Daniel Industries, Inc. Mr.
O'Neill has been a director of our company since 1997. Mr. O'Neill's term as a
director expires at the annual stockholders' meeting in 2000.
H. Brian Thompson will be appointed as an independent director of our board
concurrently with the completion of the offerings. Mr. Thompson has been
Chairman and Chief Executive Officer of Global TeleSystems Group, Inc. since
March 1999. From January to March 1999, he served as non-executive chairman of
Telecom Eireann, Ireland's incumbent telephone company. From June to December
1998, Mr. Thompson served as Vice Chairman of Qwest Communications International
Inc. after its merger with LCI International. From 1991 to June 1998, Mr.
Thompson served as Chairman and Chief Executive Officer of LCI International.
Mr. Thompson also serves as a member of the board of directors of Bell Canada
International Inc. and PageNet
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do Brazil, as co-chairman of the Global Information Infrastructure Commission,
and as chairman of the Advisory Committee for Telecommunications for Ireland's
Department of Public Enterprise. Mr. Thompson's term as a director will expire
at the annual stockholders' meeting in 2001.
Roy A. Wilkens will be appointed as an independent director and
non-executive chairman of the board of our company concurrently with completion
of the offerings. Mr. Wilkens is a member of the board of directors of UniDial
Inc., Invensys Corporation Inc., Splitrock Services, Inc. and McLeod USA
Incorporated. He is a former director of Qwest Communications and Paging Network
Inc. He was President of Williams Pipeline Company, a subsidiary of Williams,
when he founded WilTel, Inc., then a subsidiary of Williams, in 1985. He served
as Chief Executive Officer of WilTel from 1985 to 1997. In 1995, LDDS
Communications, which now operates under the name MCI WorldCom, acquired WilTel
from Williams. In 1997, Mr. Wilkens retired from WorldCom as Vice Chairman. In
1992, President George Bush appointed Mr. Wilkens to the National Security
Telecommunications Advisory Council. He has also served as chairman of both the
Competitive Telecommunications Association and the National Telecommunications
Network. Mr. Wilkens' term as a director of our company will expire at the
annual stockholders' meeting in 2002.
BOARD COMPENSATION AND BENEFITS
Messrs. Janzen and Bumgarner will not receive additional compensation for
serving on our board of directors or committees of the board. Directors who are
not our employees but who are employees of Williams will receive one time grants
of ten-year, fully exercisable options to purchase 50,000 shares of our common
stock, or in the case of Mr. Bailey, 100,000 shares of our common stock, at an
exercise price equal to the initial public offering of our common stock in the
equity offering. These individuals will not receive additional compensation for
serving on our board of directors or our committees.
Independent directors elected who are in office at the time of completion
of the equity offering will receive a one-time grant of options to purchase
10,000 shares of our common stock. Independent directors will also receive an
annual retainer of $12,000, shares of our common stock equal in value to $40,000
and an annual grant of ten-year, fully exercisable options to purchase 8,000
shares of our common stock for so long as they are directors of our company. The
exercise price per share for these options will be set at the market price of
our common stock on the date of grant, which in the case of the independent
directors elected at the time of completion of the offerings will be deemed to
be the initial public offering price. Non-employee directors will also receive a
committee retainer of $4,000 for each committee assignment held and an
additional fee for attending board and committee meetings of $1,000 and $500,
respectively. Chairpersons of the audit/affiliated transactions and compensation
committees will be paid an additional annual fee of $2,500.
We expect that directors may elect to receive all or part of their cash
fees in the form of common stock or deferred stock. Individuals may defer stock
to any subsequent year or until that individual ceases to be a director. We will
pay dividend equivalents on deferred shares to the extent that dividends are
declared and paid on our common stock, and directors may elect to receive the
dividend equivalents in cash or in additional deferred shares.
We will reimburse all directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board or any committee or otherwise
because of service as a director.
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COMMITTEES OF THE BOARD
To date, our board has not had either an audit/affiliated transactions
committee or a compensation committee. The Williams compensation committee
determines the compensation for senior Williams officers and the presidents of
Williams' operating subsidiaries. Messrs. Janzen, Bumgarner and von Glahn are
the only named executive officers that fall into this category. The compensation
of the other named executive officers for 1998 was determined by Mr. Janzen and
Gerald Carson, our Senior Vice President for Human Resources, with input from
Williams' human resources department and was based upon compensation survey
information relevant to companies of similar size in the communications
industry.
Prior to the completion of the offerings, our board will establish an
audit/affiliated transactions committee and a compensation committee. Each
committee will be comprised solely of independent directors.
AUDIT/AFFILIATED TRANSACTIONS COMMITTEE RESPONSIBILITIES
Our audit/affiliated transactions committee will:
- - recommend to the board the selection, retention or termination of our
independent auditors
- - approve the level of non-audit services provided by the independent auditors
- - review the scope and results of the work of our internal auditors
- - review the scope and approve the estimated cost of the annual audit
- - review the annual financial statements and the results of the audit with
management and the independent auditors
- - review with management and the independent auditors the adequacy of our
internal accounting controls
- - review with management and the independent auditors the significant
recommendations made by the auditors with respect to changes in accounting
procedures and internal accounting controls
- - review and approve any transaction between us and Williams, or any entity in
which Williams has a 20% or greater ownership interest, where the transaction
is other than in the ordinary course of business and has a value of more than
$10 million
- - report to the board on its review and make such recommendations as it deems
appropriate
COMPENSATION COMMITTEE RESPONSIBILITIES
Our compensation committee will:
- - administer our stock plans and related programs
- - approve, or refer to the board of directors for approval, changes in these
plans and the compensation programs to which they relate
- - review and approve the compensation and development of our senior executives
OUR EXECUTIVE OFFICERS
In addition to Mr. Janzen and Mr. Bumgarner, the following persons are our
executive officers:
David P. Batow has been the general counsel of our company since 1996.
Prior to that time, he served as general counsel to Williams Gas Pipelines
Central, Inc., an affiliate of Williams, from 1993 to 1996. Mr. Batow joined
Williams in 1987.
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Mark A. Bender has been Vice President and Chief Information Officer of our
company since March 1999. He has held various positions with other affiliates of
Williams since November 1993.
Delwin L. Bothof has been Senior Vice President, Domestic Strategic
Investments since May 1999 and was Senior Vice President, Applications of our
company since 1997. Mr. Bothof served as President of Vyvx, Inc., now known as
Williams Communications, Inc., from 1989 to 1997.
Matthew W. Bross has been Senior Vice President and Chief Technology
Officer of our company since May 1999 and was Vice President and Chief
Technology Officer of our company from 1998 to 1999. He joined our company in
1997 when our company acquired Critical Technologies, Inc., a company he founded
in 1991, that focused on large-scale, global telecommunications infrastructures
with an emphasis on the Internet. Mr. Bross served as Chief Executive Officer of
Critical Technologies from 1991 until its acquisition by our company and has
more than 20 years of experience in the telecommunications industry.
Gerald L. Carson has been Senior Vice President, Human Resources of our
company since May 1999 and Vice President Human Resources of our company from
1997 to 1999. Prior to that time, Mr. Carson held various management and human
resources positions with Williams since 1985.
Kenneth R. Epps has been Senior Vice President, Strategic Marketing of our
company since February 1999. Before joining Williams in February 1999, Mr. Epps
served as a vice president of Emerald Solutions, Inc., a start-up information
technology firm, from 1998 to 1999. Prior to that he was with AT&T for 13 years.
Lawrence C. Littlefield, Jr. Effective June 7, 1999, Mr. Littlefield became
Senior Vice President and Group Executive of our company. Since 1997, Mr.
Littlefield had been Senior Vice President and Chief Financial Officer of our
company. Prior to that, Mr. Littlefield served as Senior Vice President,
Marketing, Strategic Sales and Operations and as Vice President, Finance and
Administration for a predecessor of Solutions. From 1990 to 1995, he served as
Vice President, Finance and Administration and Chief Financial Officer of
Williams Telecommunications Group, Inc., which was then an affiliate of
Williams.
Patti L. Schmigle has been Senior Vice President of our company since 1997
and has been Senior Vice President, Solutions since June 30, 1999. Ms. Schmigle
has held various management and officer level positions with Williams since
1980, including Vice President of Performance Management of Williams from June
1996 to November 1997, Vice President of Operations and Engineering of Williams
Gas Pipeline Central, Inc., an affiliate of Williams, from 1995 to June 1996,
and Director of Engineering of Williams Pipe Line Company, also an affiliate of
Williams, from 1994 to 1995.
Scott E. Schubert became Senior Vice President and Chief Financial Officer
of our company on June 7, 1999. Before joining our company, Mr. Schubert was
vice president of global accounting services and finance of BP Amoco. He had 23
years of experience with Amoco, including the past six years as an officer of
Amoco prior to its merger with British Petroleum.
Frank M. Semple has been Senior Vice President, Network of our company
since 1997. From 1995 to 1997, Mr. Semple served as Senior Vice President and
General Manager of Williams Gas Pipelines Central, Inc., an affiliate of
Williams. From 1994 to 1995, Mr. Semple served as Vice President of Operations
and Marketing for Northwest Pipeline Corporation, also an affiliate of Williams.
Mr. Semple has held various management and officer level positions with Williams
since 1979.
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William G. von Glahn has been Senior Vice President, Law of our company
since March 1999. Mr. von Glahn has been the general counsel of Williams since
1996. Mr. von Glahn joined Williams in 1984 as associate general counsel.
S. Miller Williams has been Senior Vice President and Senior Managing
Director of International Strategic Investments since May 1999 and was Senior
Vice President, Corporate Development of our company since 1996. From 1992
through 1996, Mr. Williams held various officer level positions with
predecessors of our company and WilTel, Inc.
STOCK OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS
All of our capital stock is currently owned by Williams and therefore none
of our executive officers or directors own any of our capital stock. All of our
executive officers and directors will be granted options to purchase shares of
our common stock at the time of completion of the equity offering. In addition,
those individuals who were granted deferred shares or options under the Williams
Communications stock plan will have the right to receive deferred shares or
options to purchase our common stock in cancellation of deferred Williams shares
or options to purchase Williams common stock held by them. Mr. Janzen will have
the right to receive deferred shares in exchange for deferred shares of Williams
common stock held by him. Messrs. Littlefield and Schubert will receive grants
of deferred shares at the time of completion of the equity offering. In
addition, some or all of our executive officers and directors may purchase
shares of our common stock in the equity offering from the shares reserved for
employees and directors of our company and Williams. For more information, see
"New stock-based and incentive plans of our company" below and "Principal
Stockholders -- Ownership of our common stock and Class B common stock." At the
time of completion of the equity offering, no director or executive officer will
own or have options to purchase in excess of 1% of our common stock.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by our company to our
chief executive officer and four other most highly compensated executive
officers during the three years ending December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS(1)(2) OPTIONS(3) COMPENSATION(4)
- --------------------------- -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen.............. 1998 $400,000 $126,000 $2,574,000(5) 30,000 $12,050
President, Chief Executive 1997 300,000 105,000 45,000 60,000 10,131
Officer and Director 1996 250,000 108,282 46,406 60,002 9,496
Delwin L. Bothof.............. 1998 $210,000 $ 46,857 $ 650,082 15,000 $12,800
Senior Vice President, 1997 184,000 55,956 26,530(6) 30,000 10,131
Domestic Strategic 1996 176,200 55,096 23,613 45,000 9,496
Investments
Lawrence C. Littlefield,
Jr.......................... 1998 $190,000 $ 42,394 $ 207,169 15,000 $12,800
Senior Vice President and 1997 175,000 53,219 22,808 30,000 10,131
Group Executive 1996 165,000 24,948 306,943(7) 81,000 9,496
Garry K. McGuire.............. 1998 $290,000 $ 30,441 $ 643,046 15,000 $ 9,600
Senior Vice President, 1997 100,000 105,308 318,695(8) 50,000 0
Solutions (until June 30,
1999)
Frank M. Semple............... 1998 $240,000 $ 91,350 $ 669,150 15,000 $12,800
Senior Vice President, 1997 210,717 95,404 40,888 50,000 10,131
Network 1996 196,820 82,664 35,428 45,000 9,496
</TABLE>
- -------------------------
(1) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock awards under the terms of The Williams
Companies, Inc. 1996 stock plan and The Williams Companies, Inc. stock plan
for nonofficer employees. Amounts represent the value of awards granted
pursuant to the executive incentive compensation program. Valuation of the
awards is based on the 52-week average stock price for the award year as
follows: Mr. Janzen -- for 1998, 1,769 shares valued at $54,000, for 1997,
1,963 shares valued at $45,000 and for 1996, 2,776 shares valued at $46,406;
Mr. Bothof -- for 1998, 658 shares valued at $20,082, for 1997, 1,047 shares
valued at $23,981 and for 1996, 1,414 shares valued at $23,613; Mr.
Littlefield -- for 1998, 596 shares valued at $18,169, for 1997, 995 shares
valued at $22,808 and for 1996, 640 shares valued at $10,693; Mr.
McGuire -- for 1998, 428 shares valued at $13,046, for 1997, 1,970 shares
valued at $45,132 and for 1996, no shares; and Mr. Semple -- for 1998, 1,283
shares valued at $39,150, for 1997, 1,784 shares valued at $40,888 and for
1996, 2,120 shares valued at $35,428. Receipt of deferred stock under the
executive incentive compensation program is approximately three years after
the date of grant. Dividend equivalents are paid on deferred stock at the
same time and at the same rate as dividends paid to stockholders generally.
(2) Amounts reported in this column include the dollar value as of the date of
grant of Williams deferred stock under the terms of the Williams
Communications stock plan. Amounts represent the value of stock awards
granted on May 21, 1998 as follows: Mr. Bothof, 20,000 shares valued at
$630,000, Mr. Littlefield, 6,000 shares valued at $189,000, Mr. McGuire,
20,000 shares valued at $630,000, and Mr. Semple, 20,000 shares valued at
$630,000. Receipt of deferred stock under the Williams Communications Stock
Plan is approximately five years after the date of grant. Dividend
equivalents are paid on deferred
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stock at the same time and at the same rate as dividends paid to
stockholders generally. Each individual will have the right to receive
deferred shares of our common stock in exchange for deferred shares of
Williams common stock as described in "-- New stock-based and incentive
plans of our company -- Treatment of specified Williams stock awards" below.
(3) Adjusted to reflect stock splits.
(4) Amounts reported in this column represent the value of contributions made by
Williams to defined contribution pension plans, on behalf of each of our
executive officers named in the table.
(5) This amount includes a Williams deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998 under The Williams Companies,
Inc. 1996 stock plan. One-half of the shares vest five years after the date
of grant and one-half of the shares vest ten years after the date of grant.
The value of the award at the time of grant was $2,520,000. Dividend
equivalents are paid on deferred stock at the same time and at the same rate
as dividends paid to stockholders generally. Mr. Janzen will have the right
to receive deferred shares of our common stock in exchange for deferred
shares of Williams common stock as described in "-- New stock-based and
incentive plans of our company -- Treatment of specified Williams stock
awards" below.
(6) Amounts include the dollar value as of the date of grant of 138 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $2,549.
(7) Amounts include the dollar value as of the date of grant of 18,000 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $296,250.
(8) Amounts include the dollar value as of the date of grant of 12,000 shares of
Williams deferred stock awards under the terms of The Williams Companies,
Inc. stock plan for nonofficer employees. The value of the award at the date
of grant was $273,563.
Messrs. Janzen, Bothof and Littlefield will have the right to receive
deferred shares of our common stock in exchange for deferred shares of Williams
common stock as described in "-- New stock-based and incentive plans of our
company -- Treatment of specified Williams stock awards" below.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding grants of stock options
made to the named executive officers during the 1998 fiscal year. All grants
relate to Williams common stock.
WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION GRANT DATE
NAME OPTIONS GRANTED IN FISCAL YEAR (PER SHARE) DATE PRESENT VALUE(2)
- ---- --------------- --------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Howard E. Janzen...... 10,000 0.20% $31.5625 03/30/08 $107,600
10,000 0.20 $34.3750 07/25/08 117,300
10,000 0.20 $30.0000 11/19/08 103,900
------ ---- --------
30,000 0.60% $328,800
Delwin L. Bothof...... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Lawrence C.
Littlefield, Jr..... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Garry K. McGuire...... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
Frank M. Semple....... 5,000 0.10% $31.5625 03/30/08 $ 53,800
5,000 0.10 $34.3750 07/25/08 58,650
5,000 0.10 $30.0000 11/19/08 51,950
------ ---- --------
15,000 0.30% $164,400
</TABLE>
- -------------------------
(1) Options granted in 1998 vested pursuant to an accelerated vesting provision
that accelerates vesting if the average price of Williams common stock
reaches and maintains a specified target price for five out of ten
consecutive business days. Williams granted these options under The Williams
Companies, Inc. 1996 stock plan and The Williams Companies, Inc. stock plan
for nonofficer employees.
(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 25%
"weighted-average," a risk-free rate of return of 5.3% "weighted-average," a
dividend yield of 2% and an exercise date at the end of the contractual term
in 2008. The actual value, if any, that may be realized by an executive will
depend on the market price of Williams common stock on the date of exercise.
The dollar amounts shown are not intended to forecast possible future
appreciation in Williams stock price.
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WILLIAMS OPTION EXERCISES IN 1998
The following table provides certain information on stock option exercises
with respect to Williams common stock by our executive officers named in the
table above during our fiscal year ended December 31, 1998.
AGGREGATED WILLIAMS OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen...... 52,194 $1,160,176 214,812 30,000 $3,214,637 $11,875
Delwin L. Bothof...... 76,000 $ 789,563 30,000 15,000 $ 205,000 $ 5,938
Lawrence C.
Littlefield, Jr..... 25,000 $ 415,625 86,000 15,000 $1,019,500 $ 5,938
Garry K. McGuire...... -- $ -- 50,000 15,000 $ 390,625 $ 5,938
Frank M. Semple....... 92,810 $1,278,281 140,000 15,000 $1,904,375 $ 5,938
</TABLE>
- -------------------------
(1) Based on the closing price of $31.1375 per share of Williams common stock at
December 31, 1998, less the exercise price. The values shown reflect the
value of options accumulated over periods of up to ten years. The values
reflected in the table had not been realized at that date and may not be
realized. In the event the options are exercised, their value will depend
upon the value of Williams common stock on the date of exercise.
Williams has extended to each of our directors and to some of our executive
officers loans in order to enable them to exercise stock options to purchase
Williams common stock. As of May 10, 1999, loans aggregating approximately $30.8
million were outstanding to these directors and executive officers.
PENSION PLANS
At the time of the offerings, we will make available the same pension plans
in which eligible employees were participating immediately prior to the
offerings. Mr. Janzen, Mr. Bothof, Mr. Littlefield and Mr. Semple will continue
to participate in the Williams pension plan. Mr. McGuire will continue to
participate in the Solutions LLC pension plan.
WILLIAMS PENSION PLAN
The Williams pension plan is a non-contributory, tax-qualified cash balance
pension plan subject to the Employee Retirement Income Security Act of 1974. The
plan generally includes all of our salaried employees who are employed outside
of Solutions LLC and who have completed one year of service. Except as noted
below, our executive officers participate in the plan on the same terms as other
full-time employees.
Effective April 1, 1998, Williams converted the plan from a final average
pay plan to a cash balance pension plan. Each participant's accrued benefit as
of that date was converted to a beginning account balance. Account balances are
credited with an annual employer contribution and quarterly interest
allocations. Each year an employer contribution equal to a percentage of
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eligible compensation is allocated to each employee's pension account. This
percentage is based upon each employee's age according to the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF ELIGIBLE PAY
PERCENTAGE OF ALL GREATER THAN THE SOCIAL
AGE ELIGIBLE PAY SECURITY WAGE BASE
- --- ----------------- --------------------------
<S> <C> <C>
30 4.5% 1%
30-39 6% 2%
40-49 8% 3%
50+ 10% 5%
</TABLE>
For employees, including the executive officers who participate in the
plan, who were active employees and plan participants on March 31, 1998 and
April 1, 1998, the percentage of all eligible pay is increased by an amount
equal to the product of 0.3% multiplied by the participant's total years of
service prior to March 31, 1998. Interest is credited to account balances
quarterly at a rate determined annually in accordance with the terms of the
plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.
Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bothof and Mr. Littlefield
are covered under this grandfather provision.
The Internal Revenue Code of 1986, as amended, currently limits the pension
benefits that can be paid from a tax-qualified pension plan to highly
compensated individuals. These limits prevent such individuals from receiving
the full pension benefit based on the same formula as is applicable to other
employees. As a result, Williams has adopted an unfunded supplemental retirement
plan to provide a supplemental retirement benefit equal to the amount of such
reduction to every employee whose benefit payable under the plan is reduced
because of these limitations, including the executive officers who participate
in this plan.
Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:
<TABLE>
<S> <C>
Howard E. Janzen............................................ $504,840
Delwin L. Bothof............................................ 92,319
Lawrence C. Littlefield, Jr................................. 44,394
Frank M. Semple............................................. 259,410
</TABLE>
The following table illustrates projected annual retirement benefits for
employees grandfathered under the final average pay formula, payable as a single
life annuity amount from both the tax-qualified and the supplemental retirement
plans based on various levels of final
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<PAGE> 118
average annual compensation and years of service. The benefits are not subject
to deduction for any offset amounts.
WILLIAMS PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 20,966 $ 31,448 $ 41,931 $ 52,414 $ 62,897 $ 73,379
$ 175,000 $ 30,216 $ 45,323 $ 60,431 $ 75,539 $ 90,647 $105,754
$ 200,000 $ 34,840 $ 52,260 $ 69,680 $ 87,100 $104,520 $121,940
$ 250,000 $ 44,090 $ 66,135 $ 88,180 $110,225 $132,270 $154,315
$ 300,000 $ 53,340 $ 80,010 $106,681 $133,351 $160,022 $186,692
$ 400,000 $ 72,681 $109,022 $145,363 $181,703 $218,044 $254,385
$ 450,000 $ 81,090 $121,636 $162,181 $202,726 $243,272 $289,244
$ 500,000 $ 90,340 $135,510 $180,680 $225,850 $271,020 $316,190
</TABLE>
The estimated annual benefits payable at normal retirement age from both
the tax-qualified and the supplemental retirement plans as of December 31, 1998
would be based on average compensation of $267,705 for Mr. Bothof with 8 years
of credited service and $218,657 for Mr. Littlefield with 9 years of credited
service.
SOLUTIONS LLC PENSION PLAN
The Solutions LLC pension plan is a non-contributory, tax-qualified defined
benefit plan subject to ERISA. The plan generally includes all of our salaried
employees who work for Solutions LLC and who have completed one year of service.
Except as noted below, executive officers participate in the plan on the same
terms as other full-time employees.
The normal retirement benefit is a monthly annuity determined by averaging
compensation during the four calendar years of employment with the highest
compensation within the ten calendar years preceding retirement. Compensation
includes salary and bonuses. Normal retirement age is 65. Early retirement may
be taken with reduced benefits beginning as early as age 55. At retirement,
employees are entitled to receive a single-life annuity or one of several
optional forms of settlement having an equivalent actuarial value to the
single-life annuity.
The Internal Revenue Code currently limits the pension benefits that can be
paid from a tax-qualified defined benefit plan to highly compensated
individuals. These limits prevent such individuals from receiving the full
pension benefit based on the same formula as is applicable to other employees.
As a result, we have adopted an unfunded supplemental retirement plan to provide
a supplemental retirement benefit equal to the amount of such reduction to every
employee whose benefit payable under the plan is reduced by these limitations,
including the executive officers who participate in the plan.
The following table illustrates projected annual retirement benefits
payable as a single life annuity amount under both the tax-qualified and the
supplemental retirement plans based on
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<PAGE> 119
various levels of final average annual compensation and years of service. The
benefits are not subject to deduction for any offset amounts.
SOLUTIONS LLC PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000 $17,340 $23,120 $ 28,900 $ 34,680 $ 40,460
$ 175,000 $25,012 $33,350 $ 41,687 $ 50,025 $ 58,362
$ 200,000 $28,849 $38,465 $ 48,081 $ 57,697 $ 67,313
$ 250,000 $36,521 $48,695 $ 60,869 $ 73,042 $ 85,216
$ 300,000 $44,194 $58,925 $ 73,042 $ 88,387 $103,118
$ 400,000 $59,539 $79,385 $ 99,231 $119,077 $138,923
$ 450,000 $67,211 $89,615 $112,019 $134,422 $156,826
$ 500,000 $74,884 $99,845 $124,806 $149,767 $174,728
</TABLE>
The estimated annual benefits payable from both the tax-qualified and the
supplemental retirement plans as of December 31, 1998 would be based on average
compensation of $267,239 for Mr. McGuire with 16 years of credited service.
WILLIAMS' PLANS
Prior to the offerings, stock options and deferred stock awards relating to
Williams common stock were made to our employees under The Williams Companies,
Inc. 1996 stock plan, The Williams Companies, Inc. stock plan for nonofficer
employees and the Williams Communications stock plan. These plans permit the
compensation committee of Williams' board of directors to grant different types
of stock-based awards, including deferred stock awards. They also provide for
stock option awards giving employees the right to purchase common stock over a
ten-year period at the market value per share of Williams common stock, as
defined by the plan, as of the date the option is granted. Stock options granted
under The Williams Companies, Inc. 1996 stock plan and The Williams Companies,
Inc. stock plan for nonofficer employees are subject to three-year vesting from
January 20 of the year the options are granted. Both plans provide for
accelerated vesting if the average price of Williams common stock reaches and
maintains a specified target price for five out of ten consecutive business
days. Options granted under the Williams Communications stock plan are generally
subject to five-year vesting, but provide for accelerated vesting based on the
attainment of various performance targets.
The compensation committee's objective with respect to stock option awards
is to provide a long-term component to overall compensation which aligns the
interests of executives with the interests of stockholders through stock
ownership. Compensation opportunities in the form of stock options serve this
purpose. The compensation committee has established stock option award targets
for each level of management participating in the stock option program. The
target levels for annual stock option grants have been established based on
competitive market practices and range from 50,000 shares for the chairman,
president and chief executive officer of Williams to 1,500 shares for
manager-level employees. In making decisions on stock option awards, the
compensation committee has available to it information on previous stock option
awards granted under the plans. Stock option awards are not tied to
preestablished performance targets.
The Williams stock plans also provide for awards of deferred stock which
the employee cannot otherwise dispose of prior to vesting. Williams' annual
incentive program requires that 30% of an executive's award be deferred in
Williams common stock. Deferred stock is normally forfeited if the executive
terminates employment for any reason other than retirement, disability
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<PAGE> 120
or death prior to the end of the deferral period. Executive officers also have
the option to defer all or a portion of the cash award. Participants who elect
to defer all or a portion of the cash award may elect to defer for up to five
years from the award date. Deferred stock cannot be sold or otherwise disposed
of until the applicable deferral period lapses. Dividend equivalents are paid on
deferred stock. The value of the deferred award is at risk during the deferral
period since the value is tied to the stock price. The compensation committee
also uses deferred stock awards to provide, on a selective basis, a vehicle for
tying an element of compensation to the employee's willingness to remain with
Williams in a way that aligns the employee's interests with those of the other
stockholders.
NEW CHANGE IN CONTROL SEVERANCE PLAN OF OUR COMPANY
We have established a change in control severance plan which covers our
executives, including the executive officers named in the summary compensation
table. The plan provides severance benefits if, within two years following a
change in control of Williams or our company, a participant's employment is
terminated either involuntarily, other than for cause, death, disability or the
sale of a business, or voluntarily for good reason. The severance benefit is a
lump sum payment equal to 100% of the participant's annual base salary, plus
100% of the participant's monthly base salary for each completed year of
service, subject to a maximum severance benefit equal to 200% of the
participant's annual base salary.
If necessary, a participant is entitled to receive a corresponding gross-up
payment sufficient to compensate for the amount of any excise tax imposed by
Section 4999 of the Internal Revenue Code and for any taxes imposed on the
additional payment. Amounts payable under the plan are in lieu of any payments
which may otherwise be payable under any other severance plan or program.
NEW STOCK-BASED AND INCENTIVE PLANS OF OUR COMPANY
Prior to the completion of the equity offering, we expect to adopt stock
plans which will authorize the grant of different types of stock-based awards to
our employees. The total number of shares of our common stock to be authorized
for issuance under these plans is expected to be approximately 36,000,000.
The terms of the plans will be substantially similar to those of the
Williams stock plans described above, except that stock option grants will
generally be subject to a three-year graded (one-third per year) vesting
requirement, and will not provide for performance-based accelerated vesting. The
plans will be administered by our compensation committee. Award agreements with
respect to awards granted under the plans to our employees are expected to
provide that in the event of certain terminations of a participant's employment
following a change in control of Williams, or of our company, awards will become
fully vested and exercisable and generally remain exercisable for a period of 18
months. Award agreements with respect to awards granted under the plan to
Williams' independent directors, Williams' executive officers and certain other
Williams employees are expected to provide that in the event of a change in
control of our company awards will become fully vested and exercisable and
generally remain exercisable for a period of 18 months.
STOCK OPTION AND DEFERRED SHARE GRANTS
As of the completion of the equity offering, we intend to make stock option
grants under a new stock plan to employees. These awards and subsequent awards
under the plan will be made to selected employees and will be targeted to be
competitive with equity-based awards of similar companies in our industry. The
initial options will have an exercise price equal to the initial
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<PAGE> 121
public offering price, the other options will have an exercise price equal to
the market price of the common stock on the date of grant and all of these
options will be subject to three-year graded vesting, which means that these
options will vest in three equal installments over three years. The total number
of shares covered by the initial awards is expected to be approximately
2,800,000.
We intend to make one-time stock option grants to our independent
directors, executive officers and other key employees as of the completion of
the equity offering. These options will have an exercise price equal to the
initial public offering price and, except for grants to independent directors
that will vest upon grant, be subject to five-year cliff vesting, which means
that all of these options will vest after five years. The total number of shares
covered by these one-time grants is expected to be approximately 2,700,000.
We also intend to make one-time stock option grants to Williams'
independent directors, Williams' executive officers and certain other Williams
employees. These options will have an exercise price equal to the initial public
offering price and, except for grants to independent directors that will vest
upon grant, be subject to five-year cliff vesting. The total number of shares
covered by these grants is expected to be approximately 750,000.
We also intend to make a one-time option grant to purchase shares of our
common stock to each of our regular employees who are not eligible to receive
annual grants under our stock plans. These options will have an exercise price
equal to the initial public offering price and be subject to three-year cliff
vesting. The total number of shares covered by these grants is expected to be
approximately 800,000.
Effective as of the completion of the equity offering, Mr. Littlefield will
receive an additional grant of 9,200 deferred shares and Mr. Schubert will
receive a grant of deferred shares with a value of $500,000 based on the initial
public offering price.
TREATMENT OF SPECIFIED WILLIAMS STOCK AWARDS
Prior to the closing of the equity offering, individuals who are actively
employed by us or Williams and who hold deferred shares of Williams common stock
or options to purchase shares of Williams common stock granted under the
Williams Communications stock plan will have the right to surrender for
cancellation each deferred Williams share or Williams option, whether or not
vested or exercisable, and, upon cancellation, we will issue or grant to these
individuals a deferred share or stock option in our company. Mr. Janzen will
also have the right to receive deferred shares in exchange for Williams deferred
shares held by him under The Williams Companies, Inc. 1996 stock plan. Except
for one-fourth of the shares issued in exchange which will vest at the closing
of the equity offering, all of these deferred shares or options will have the
same deferral, vesting and exercisability features as the deferred Williams
share or Williams option cancelled. The number of deferred shares that we issue
or the number of shares subject to each of the stock options that we grant and
the exercise price per share of our stock options will be determined in a manner
that will reflect the relative value between the Williams common stock and our
common stock giving the participant approximately equal value before and after
the exchange.
As of the date of this prospectus, there are outstanding under the Williams
Communications stock plan approximately 175,000 deferred Williams shares and
approximately 510,000 Williams shares issuable under existing options which are
eligible to be exchanged for deferred shares or options to purchase our common
stock. Mr. Janzen holds 80,000 deferred shares under The Williams Companies,
Inc. 1996 stock plan. If all of the eligible employees were to exercise their
rights to exchange existing Williams awards for deferred shares or options to
purchase our
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<PAGE> 122
common stock, we would issue approximately ______ deferred shares and we would
grant options to purchase approximately ______ shares of our common stock.
DIRECTED STOCK PROGRAM
We intend to provide all regular domestic Williams employees, all of our
regular domestic employees, the independent directors of both companies and
selected suppliers and customers of our company with the opportunity to purchase
shares of our common stock. Employees who participate in certain 401(k) plans
will have the option to execute this purchase through the 401(k) plan. Up to
7.0% of the common stock constituting the equity offering will be available for
purchase under this program, with no more than 0.7% of the common stock
constituting the equity offering to be available for purchase under this program
by independent directors of our company and Williams or our suppliers and
customers. See the section of this prospectus entitled "Underwriting" for more
information.
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<PAGE> 123
PRINCIPAL STOCKHOLDERS
OWNERSHIP OF OUR COMMON STOCK AND CLASS B COMMON STOCK
Prior to the equity offering, Williams owned 100% of our capital stock. In
the equity offering, we will be selling ____ shares, or __%, of common stock,
and in the concurrent investments we will be selling ____ shares, or __%, of
common stock. Following the equity offering and the concurrent investments,
Williams will own 100% of our outstanding Class B common stock.
In connection with the offerings, we will grant directors and executive
officers options to purchase common stock and will grant some of the executive
officers deferred shares of our common stock. See the section of this prospectus
entitled "Management" for more information.
The following table first sets forth the expected ownership of class B
common stock by Williams, which is expected to be the only beneficial owner of
at least 5% of our common stock upon completion of the equity offering and the
concurrent investments. The table also sets forth the expected ownership by our
directors and executive officers of our common stock, or of options to purchase
our common stock as of the completion of the equity offering, based on the
assumption that all directors and executive officers elect to fully exchange
current Williams deferred share and option awards for our deferred share and
option awards to the extent that they are eligible to do so, but excluding
shares that executive officers and directors may purchase under the directed
stock program. For those individuals who hold deferred shares or options to
purchase Williams common stock that are eligible to be exchanged for deferred
shares or options to purchase our common stock, and for stock options
denominated as dollar amount awards, the number of shares indicated below have
been determined based on an assumed initial offering price of $____ per share
and a price per share of Williams common stock of $49.00, which was the trading
price of Williams common stock on June 21, 1999. Other than for Mr. Wilkens, a
significant percentage of the options to purchase common stock indicated for
each individual will not be exercisable at the time of, or within 60 days
following, the completion of the equity offering. Subject to applicable
community property laws, these persons have sole voting and investment power
with respect to all shares of our common stock shown as beneficially owned by
them. The address for Williams is The Williams Companies, Inc., One Williams
Center, Tulsa, Oklahoma 74172 and for the other stockholders is c/o Williams
Communications Group, Inc., One Williams Center, Tulsa, Oklahoma 74172. The
percent of class after the equity offering has been calculated with our common
stock and Class B common stock treated as the share class and without giving
effect to the issuance of any shares of our common stock upon exercise of the
underwriters' overallotment option.
<TABLE>
<CAPTION>
PERCENT OF CLASS
SHARES OF SHARES ---------------------------------
COMMON UNDERLYING PRIOR TO THE AFTER THE
STOCKHOLDER STOCK OWNED OPTIONS TOTAL EQUITY OFFERING EQUITY OFFERING
- ----------- ----------- ---------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
The Williams Companies, Inc. ........... -- 100% %
SBC Communications, Inc.(1)............. -- --
Intel Corporation....................... -- --
Telefonos de Mexico, S.A. de C.V.(1).... -- -- *
Keith E. Bailey......................... -- 100,000 100,000 * *
John C. Bumgarner, Jr. ................. -- 50,000 50,000 * *
James R. Herbster....................... -- 50,000 50,000 * *
Howard E. Janzen........................ 300,000 * *
Michael P. Johnson, Sr. ................ -- 50,000 50,000 * *
Steven J. Malcolm....................... -- 50,000 50,000 * *
Jack D. McCarthy........................ -- 50,000 50,000 * *
Brian E. O'Neill........................ -- 50,000 50,000 * *
H. Brian Thompson....................... -- 14,000 14,000 * *
Roy A. Wilkens.......................... -- 14,000 14,000 * *
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
PERCENT OF CLASS
SHARES OF SHARES ---------------------------------
COMMON UNDERLYING PRIOR TO THE AFTER THE
STOCKHOLDER STOCK OWNED OPTIONS TOTAL EQUITY OFFERING EQUITY OFFERING
- ----------- ----------- ---------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Delwin L. Bothof........................ 70,000 * *
Lawrence C. Littlefield, Jr. ........... 70,000 * *
Frank M. Semple......................... 100,000 * *
All directors and executive officers as
a group (22 persons).................. * *
</TABLE>
- ---------------
* Less than 1%.
(1) If SBC consents to reduce its investment to $425 million so that Telefonos
de Mexico can invest an additional $25 million, SBC would receive ______
shares, or __% of the total shares outstanding, and Telefonos de Mexico
would receive ______ shares, or __% of the total shares outstanding. If SBC
has an investment of $500 million, SBC would receive ______ shares, or __%
of the total shares outstanding, and Telefonos de Mexico would receive
______ shares, or __% of the total shares outstanding.
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<PAGE> 125
OWNERSHIP OF WILLIAMS COMMON STOCK
The following table sets forth, as of the date of this prospectus, the
beneficial ownership of Williams common stock, par value $0.01 per share, by
each of our executive officers named in the summary compensation table, each of
our directors and all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and regulations
of the SEC. Shares of Williams common stock subject to options that are
currently exercisable or exercisable within 60 days of March 31, 1999 are deemed
to be outstanding and beneficially owned by the person holding the options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of that person, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Except as
indicated in the text below this table, and subject to applicable community
property laws, these persons have sole voting and investment power with respect
to all shares of the Williams common stock shown as beneficially owned by them.
The address for the following stockholders is c/o Williams Communications Group,
Inc., One Williams Center, Tulsa, Oklahoma 74172.
Directors and executive officers as a group own less than 2% of outstanding
Williams common stock.
OWNERSHIP OF WILLIAMS COMMON STOCK BY OUR EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
SHARES
SHARES OF UNDERLYING
COMMON OPTIONS
STOCK OWNED EXERCISABLE
DIRECTLY OR WITHIN 60 PERCENT
NAME INDIRECTLY(1) DAYS(3) TOTAL OF CLASS
---- ------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Keith E. Bailey............................ 1,886,001 325,002 2,211,003 *
John C. Bumgarner, Jr. .................... 977,891 70,000 1,047,891 *
James R. Herbster.......................... 166,085(2) 203,904 369,989 *
Howard E. Janzen........................... 242,717 200,006 442,723 *
Michael P. Johnson, Sr..................... 20,346 5,250 25,596 *
Steven J. Malcolm.......................... 55,114 138,938 194,052 *
Jack D. McCarthy........................... 211,044 30,000 241,044 *
Brian E. O'Neill........................... 123,526 324,404 447,930 *
H. Brian Thompson..........................
Roy A. Wilkens............................. 400,000 -- 400,000
Delwin L. Bothof........................... 132,981 52,500 185,481 *
Lawrence C. Littlefield, Jr. .............. 121,840 108,500 230,340 *
Frank M. Semple............................ 61,685 162,500 224,185 *
All directors and executive officers as a
group (22 persons)....................... -- -- -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 621,287, including 175,873 over which he has sole
voting and investment power; Mr. Bumgarner, 382,824, including 221,863 over
which he has sole voting and investment power; Mr. Herbster, 89,816,
including 44,005 over which he has sole voting and investment power; Mr.
Janzen, 144,802, including 58,294 over which he has sole voting and
investment power; Mr. Johnson, 20,346, including 304 shares over which he
has sole investment and voting power; Mr. Malcolm, 36,138, including 31,662
over which he has sole voting and investment power; Mr. McCarthy, 94,975,
including 42,975 over which he has sole voting and investment power; Mr.
O'Neill, 62,760, including 12,928 over which he has sole voting and
investment power; Mr. Thompson, , including over which he
has sole
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investment and voting power; Mr. Wilkens, 104,524, over all of which he has
sole voting and investment power; Mr. Littlefield, 83,340, including 10,137
over which he has sole voting and investment power; Mr. Semple, 85,034,
including 53,334 over which he has sole voting and investment power; Mr.
Bothof, 33,372, including 10,115 over which he has sole voting and
investment power; Mr. McGuire, 35,542, including 1,194 over which he has
sole voting and investment power; Ms. Schmigle, , including
over which she has sole voting and investment power; and all executive
officers as a group, , including over which each has sole
voting and investment power as to his or her shares.
(2) Includes 29,996 shares held in trust, over which Mr. Herbster has voting and
investment power.
(3) The SEC deems a person to have beneficial ownership of all shares that the
person has the right to acquire within 60 days. The shares indicated
represent stock options granted under the stock plans of The Williams
Companies, Inc. Shares subject to option cannot be voted.
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<PAGE> 127
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Included in our revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of $7,710,000,
$5,217,000 and $4,918,000 for 1998, 1997 and 1996, respectively. Charges are for
communications services which we obtain from MCI WorldCom and resell internally.
Our agreement with MCI WorldCom, which we entered into at the time we sold our
business to them, provides us with certain amounts of service on the MCI
WorldCom network for a 35-year term. We are provided services on the portion of
the network which it owns at no cost, and on portions which it leases at its
cost. We resell these communication services to Williams, its subsidiaries and
affiliates at market rates.
In addition, our revenues include charges to Williams' gas pipelines for
managing microwave frequencies of $4,254,000, $3,754,000 and $1,381,000 for
1998, 1997 and 1996, respectively. We own portions of these microwave
frequencies which we acquired from and lease to the gas pipelines. These leases
are for a 10-year term and the rental payments are equal to our purchase cost
plus a market rate of return.
Williams grants our directors and officers fully recourse loans in order to
enable them to exercise stock options to purchase Williams common stock. These
loans use stock certificates as collateral and may be for either a three- or
five-year term. Interest payments are due annually during the term of the loan
and are based on the minimum applicable federal rates required to avoid imputed
income. The principal amount is due at the end of the loan term, provided,
however, that a participant may request, prior to the end of a loan term, a new
loan which may be granted at the discretion of Williams. Participants who leave
Williams during the loan period are required to pay the loan balance and any
accrued interest within 30 days of termination. We anticipate that the loans
made by Williams to our directors and officers will remain outstanding Williams
loans after the offerings. We anticipate that Williams will continue to make
loans to our directors and officers on similar terms to enable them to exercise
Williams stock options. We may make loans to our officers and directors,
including loans to enable them to exercise stock options to purchase our common
stock. We anticipate that the terms of these loans will be fully recourse and
otherwise similar to those for Williams loans.
The following table describes details regarding these loans which have been
made to our directors or officers.
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 5/10/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Keith E. Bailey............. 6.28% $ 50,641.92 $ 171,408.39 $ 164,887.37
Keith E. Bailey............. 6.58% $ 71,656.20 $ 232,131.21 $ 222,904.28
Keith E. Bailey............. 6.42% $ 64,200.00 $ 266,050.00 $ 255,716.44
Keith E. Bailey............. 6.80% $ 144,190.19 $ 601,327.51 $ 576,677.18
Keith E. Bailey............. 5.68% $ 406,609.84 $ 1,472,720.00 $ 1,460,688.79
Keith E. Bailey............. 5.57% $1,026,811.18 $ 3,770,204.37 $ 3,760,076.92
Keith E. Bailey............. 5.54% $1,670,829.99 $ 6,143,571.06 $ 6,150,895.25
Total............ $3,434,939.32 $12,657,412.54 $12,591,846.23
John C. Bumgarner, Jr. ..... 5.91% $ 203,927.62 $ 1,218,159.86 $ 1,174,394.59
John C. Bumgarner, Jr. ..... 5.42% $ 559,102.89 $ 3,500,299.27 $ 3,504,894.64
Total............ $ 763,030.51 $ 4,718,459.13 $ 4,679,289.23
James R. Herbster........... 6.74% $ 17,864.37 $ 56,582.87 $ 54,282.53
James R. Herbster........... 6.49% $ 119,416.00 $ 391,883.22 $ 376,506.35
James R. Herbster........... 5.93% $ 77,115.43 $ 274,452.51 $ 265,578.93
Total............ $ 214,395.80 $ 722,918.60 $ 696,367.81
</TABLE>
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<PAGE> 128
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1998 5/10/99
- ---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Howard E. Janzen............ 5.70% $ 80,997.64 $ 500,521.63 $ 483,286.56
Howard E. Janzen............ 5.69% $ 87,092.51 $ 320,823.16 $ 312,328.65
Howard E. Janzen............ 5.77% $ 38,864.87 $ 139,207.01 $ 137,482.06
Howard E. Janzen............ 4.71% $ 106,851.10 $ 0 $ 459,340.85
Howard E. Janzen............ 4.83% $ 114,621.70 $ 0 $ 477,261.87
Total............ $ 428,427.82 $ 960,551.80 $ 1,869,699.99
Jack D. McCarthy............ 6.23% $ 321,312.50 $ 1,095,763.30 $ 1,054,388.82
Jack D. McCarthy............ 6.42% $ 265,031.98 $ 878,651.17 $ 844,523.79
Jack D. McCarthy............ 5.59% $ 158,731.67 $ 696,532.02 $ 680,189.94
Jack D. McCarthy............ 4.83% $ 301,392.00 $ 0 $ 1,256,752.75
Total............ $1,046,468.15 $ 2,670,946.49 $ 3,835,855.30
William G. von Glahn........ 5.83% $ 73,234.13 $ 443,131.30 $ 427,414.47
William G. von Glahn........ 5.91% $ 6,240.96 $ 37,280.31 $ 35,940.94
William G. von Glahn........ 6.23% $ 23,624.16 $ 134,274.72 $ 129,204.70
William G. von Glahn........ 5.54% $ 56,063.91 $ 353,746.50 $ 343,983.99
William G. von Glahn........ 5.59% $ 39,174.72 $ 182,954.39 $ 178,688.16
William G. von Glahn........ 5.39% $ 11,670.00 $ 102,499.38 $ 100,191.16
William G. von Glahn........ 5.48% $ 76,281.60 $ 474,170.89 $ 473,056.26
William G. von Glahn........ 5.57% $ 55,700.00 $ 203,845.60 $ 203,967.67
William G. von Glahn........ 5.54% $ 113,547.84 $ 417,448.38 $ 418,008.34
William G. von Glahn........ 5.28% $ 36,960.00 $ 0 $ 175,886.03
Total............ $ 492,497.32 $ 2,349,351.47 $ 2,486,341.72
Delwin L. Bothof............ 5.42% $ 241,045.04 $ 1,507,316.76 $ 1,511,059.01
Delwin L. Bothof............ 4.67% $ 70,049.95 $ -- $ 604,298.96
Total............ $ 311,094.99 $ 1,507,316.76 $ 2,115,357.97
Gerald L. Carson............ 5.59% $ 183,874.33 $ 686,281.13 $ 670,966.70
Total............ $ 183,874.33 $ 686,281.13 $ 670,966.70
Lawrence C. Littlefield,
Jr........................ 5.54% $ 109,692.00 $ 691,254.73 $ 673,022.79
Total............ $ 109,692.00 $ 691,254.73 $ 673,022.79
Frank M. Semple............. 5.42% $ 180,664.33 $ 1,131,060.57 $ 1,132,545.47
Total............ $ 180,664.33 $ 1,131,060.57 $ 1,132,545.47
Grand Total...... $7,165,084.57 $28,095,553.22 $30,751,293.21
</TABLE>
In connection with his employment, Williams has agreed to loan Scott E.
Schubert approximately $4,000,000 to provide funds to exercise options granted
by his former employer. Currently Mr. Schubert has two such loans outstanding,
which were made on June 22, 1999, the first in the principal amount of
$1,200,000 and bearing an interest rate of 4.98% and the second in the principal
amount of $800,000 and bearing an interest rate of 5.37%. John C. Bumgarner, one
of our directors and our Senior Vice President, Strategic Investments, owns real
estate and leases a portion of it to subsidiaries of our company for use as
office space. In 1998, payments under these leases approximated $136,782. These
leases remain in place, and we expect our subsidiaries to make similar payments
approximating $60,000 per month for the term of the leases.
Garry McGuire, Senior Vice President, Solutions (until June 30, 1999), has
an interest-free loan outstanding from Solutions LLC in the amount of $350,000.
This loan was made to enable Mr. McGuire to purchase a new principal residence
upon his relocation to Houston.
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RELATIONSHIP BETWEEN OUR COMPANY AND WILLIAMS
Williams is currently the beneficial owner of all of our capital stock.
Following the completion of the equity offering and the concurrent investments,
Williams will continue to be our controlling stockholder and will beneficially
own 100% of the outstanding Class B common stock, which will represent
approximately __% of the combined voting power of all of our outstanding capital
stock and approximately __% of the economic interest in our company.
For so long as Williams continues to beneficially own shares of capital
stock representing more than 50% of the combined voting power of our outstanding
capital stock, it will be able to approve any matter submitted to a vote of our
stockholders without the consent of our other stockholders, including, among
other things, the amendment of our restated certificate of incorporation and
by-laws and the election of all members of the board of directors. Williams has,
however, agreed to elect a director designated by SBC so long as SBC retains
more than a 5% equity interest in our capital stock and satisfies the procedural
and substantive requirements to provide long distance services originating in a
state in its traditional exchange service area. In addition, through its
controlling beneficial ownership of us, as well as certain provisions of
intercompany agreements discussed below, Williams will be able to exercise a
controlling influence over our company, including determinations with respect to
mergers or other business combinations involving us, the acquisition or
disposition of assets by us, our access to the capital markets, the payment of
dividends and any change of control of our company. In these and other
situations, various conflicts of interest between us and Williams could arise.
Furthermore, ownership interests of our directors and officers in Williams'
common stock or service as a director or officer of both us and Williams could
create, or appear to create, potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for us
and Williams. We cannot assure you that conflicts of interest will not arise or
will be resolved in a manner favorable to us.
Williams has advised us that its current intent is to continue to hold all
the Class B common stock beneficially owned by it following the equity offering.
However, Williams has no contractual obligation to retain its shares of Class B
common stock. Williams has agreed, subject to specified exceptions, not to sell
or otherwise dispose of any shares of our Class B common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Salomon Smith Barney Inc. and Lehman Brothers Inc. on behalf of the
underwriters. As a result, there can be no assurance concerning the period of
time during which Williams will maintain its beneficial ownership of our Class B
common stock owned by it following the equity offering. In addition, we have
agreed that we will, upon the request of Williams, use our reasonable best
efforts to effect the registration under applicable federal and state securities
laws of any shares of common stock or Class B common stock held by Williams or
any of its affiliates.
The following are summaries of material provisions of the agreements to be
entered into by our company with Williams by the completion of the offerings,
forms of which we have filed as exhibits to the registration statement.
SEPARATION AGREEMENT
We have entered into a separation agreement with Williams relating to
various aspects of our companies' operations that will govern our relationship
with each other after the equity offering. Under the separation agreement, we
have agreed not to compete with Williams for five years in any area of the
energy industry in which Williams currently has operations and Williams has
agreed not to compete with us for five years in any area of the
telecommunications industry in which we currently have operations, subject to
specified exceptions. Under the separation
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agreement, if a party decides not to pursue a business opportunity that it has
the right to pursue to the exclusion of the other party, it must promptly inform
the other party of this decision. The other party would then be free to pursue
the opportunity.
Our restated certificate of incorporation provides that we may not bring
any claim against Williams or any of its officers, directors or other
affiliates, for breach of any duty, including, but not limited to, the duty of
loyalty or fair dealing on account of a diversion of a corporate business
opportunity to Williams, unless that opportunity relates solely to a business
that we have the right to elect to pursue to the exclusion of Williams pursuant
to the separation agreement. Notwithstanding the above, no claim may be made in
any event if our directors who are not employees of Williams disclaim the
opportunity by a unanimous vote.
Other components of the separation agreement provide for the following:
- exchange of participation, service and compensation records of employees
who transfer between Williams and us
- filing of annual reports and compliance with other legal requirements
applicable to the parties' employee benefit plans
- allocation of assets and liabilities under various nonqualified pension
and deferred compensation plans maintained by Williams for the benefit of
employees and non-employee directors
- disposition of outstanding stock options, stock appreciation rights and
long-term incentive awards
- allocation of assets and liabilities pertaining to post-retirement life
insurance and health care benefits
- allocation of liabilities for accrued vacation, paid leave and certain
other benefits
- maintenance of insurance coverage consistent with past practices
- establishment of a separation committee to resolve disputes between us
and Williams and arbitration provisions
Our employees, other than those who work for Solutions, LLC, are jointly
employed by other subsidiaries of Williams which provide administrative services
related to their employment. We have entered into personnel services agreements
providing for reimbursement by us of the actual costs incurred by the services
companies related to our employees. Williams also pays the services companies a
fee for administration. Under the separation agreement, we have agreed to
reimburse Williams for our portion of the fee. A Williams subsidiary also
performs risk management services for us and other Williams subsidiaries.
Williams compensates the risk management subsidiary for its actual costs
incurred, a portion of which is related to our business. Under the separation
agreement, we have agreed to reimburse the risk management subsidiary for our
portion of the costs.
ALGAR CALL OPTION
We have entered into an agreement with Williams granting us the option to
acquire Williams' equity and debt interests in Algar. For more information, see
the section of this prospectus entitled "Business -- Strategic
investments -- International -- Algar."
TAX SHARING AGREEMENT
In the past, we have been included in Williams' federal consolidated income
tax group. After the offerings and the closing of the SBC investment, it is
expected that we will continue to be included in the Williams federal
consolidated income tax group. In this case, our federal income tax liability
would be included in the consolidated federal income tax liability of
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Williams and its subsidiaries. We also expect to be included with Williams
and/or certain of its subsidiaries in combined, consolidated or unitary income
tax groups for state income tax purposes. We have entered into a tax sharing
agreement with Williams under which we and Williams will make payments such
that, for any period, the amount of federal income taxes we will pay will,
subject to certain adjustments, generally be determined as though we were filing
separate federal income tax returns (including amounts determined to be due
under such agreement as a result of an audit or otherwise). Under the tax
sharing agreement, our losses or other similar tax attributes realized for
periods prior to the equity offering will be utilized or retained by the
Williams group and thus will not be available to us in order to reduce our
hypothetical separate tax liability. We will be responsible for any increases in
federal income tax liabilities resulting to Williams and its subsidiaries if
these losses or attributes are reduced by audit or otherwise. If, for any period
after consummation of the equity offering, we have a current realized operating
loss determined on such a hypothetical separate tax return basis, we will not
owe any payments under the tax sharing agreement for that tax year, and, in
general, we will be allowed to carry over the loss to other tax years in which
we are a member of the Williams federal consolidated income tax group in order
to offset our income determined on this hypothetical separate tax return basis
for other tax years. However, if we are unable to utilize any loss on a
hypothetical separate tax return basis, Williams will be entitled to utilize the
loss without paying us for it. If we cease to be included in the Williams
federal consolidated income tax group, we will not be entitled to receive the
benefit of any carryforward of any loss to offset our income for any tax years
thereafter where such loss has been utilized by the Williams group. We will also
be required to pay Williams for any tax attribute that we are entitled to use
after leaving the Williams federal consolidated income tax group if we have
already received the benefit of this tax attribute under the tax sharing
agreement. Therefore, we generally will receive the benefit of a loss only if we
are able to offset the loss against our income while we are a member of the
Williams federal consolidated income tax group. We cannot guarantee that we will
earn any income against which we can offset any loss while we are a member of
the Williams federal consolidated income tax group and, thus, that we will
obtain any benefit from losses generated while we are a member of the Williams
group.
Since we expect to continue to be included in the Williams federal
consolidated income tax group, Williams will continue to have all the rights of
a parent of a consolidated group. Williams will have sole and absolute
responsibility for, and sole and absolute discretion with respect to, the
following:
- preparing any of our income and other tax returns, including, without
limitation, amended returns or claims for refunds
- representing us with respect to any tax audit or tax contest, including,
without limitation, settling or compromising any tax controversy
- engaging outside counsel and accountants with respect to tax matters
regarding us
- performing other acts and duties with respect to our tax returns as
Williams determines to be appropriate
- interpreting and applying the tax sharing agreement and determining any
disputes that arise under it
The general principles of the tax sharing agreement will also apply to
state income taxes (and, in the sole and absolute discretion of Williams, may
also apply to foreign, local, other state and other federal taxes) with respect
to which we are included with Williams and/or certain of its subsidiaries in
consolidated, combined or unitary groups. Thus, we will be responsible for any
foreign tax liability arising from our business activities.
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To the extent permitted by applicable state laws, Williams will continue to
have all the rights of a parent of a combined, consolidated or unitary income
tax group. The tax sharing agreement will remain in effect so long as and to the
extent that we are included with Williams and/or any of its subsidiaries in any
combined, consolidated or unitary income tax group in any taxing jurisdiction
and the statute of limitations for these returns remains open.
Under the administrative services agreement, the amounts that we will pay
Williams will encompass reimbursement to Williams for all direct and indirect
costs and expenses incurred with respect to our share of the overall costs and
expenses incurred by Williams with respect to tax-related services.
In general, we will be included in Williams' consolidated group for federal
income tax purposes for so long as Williams beneficially owns at least 80% of
the total voting power and value of our outstanding common stock. Each member of
a consolidated group is jointly and severally liable for the federal income tax
liability of the consolidated group for the period during which it was a member
of this consolidated group. Accordingly, although the tax sharing agreement
allocates tax liabilities between us and Williams during the period in which we
are included in Williams' federal consolidated income tax group and provides
that Williams will indemnify us for any tax liabilities not allocated to us, we
could be liable for any federal income tax liabilities incurred, but not
discharged, by any other member of Williams' federal consolidated income tax
group. Similar principles may apply for combined, consolidated, or unitary state
income tax purposes.
INDEMNIFICATION AGREEMENT
We and Williams have entered into an indemnification agreement which
provides that each party to the agreement will indemnify the other party and its
directors, officers, employees, agents and representatives for liabilities under
federal or state securities laws as a result of the offerings, including
liabilities arising out of or based upon alleged misrepresentations in or
omissions from the registration statements. Each party will indemnify the other
party for liabilities, which also include taxes, that may be incurred by the
other party relating to, resulting from or arising out of the business and
operations conducted or formerly conducted, or assets formerly owned, by the
indemnifying party and its subsidiaries. However, where Williams is the
indemnifying party, it will not indemnify us for any liabilities relating to,
resulting from or arising out of our business and operations and assets. Each
party will indemnify the other party for liabilities, which also include taxes,
that may be incurred by that other party relating to, resulting from or arising
out of the failure by each party to comply with other agreements executed in
connection with the offerings, except to the extent caused by the other party.
The indemnification agreement also provides that we indemnify Williams for
any liabilities incurred by Williams under the guarantees of Williams'
obligations with respect to us or any other of our liabilities that are imposed
on Williams and that we will pay Williams for the direct cost, if any, of
maintaining these guarantees or for the costs of defending a claim asserting any
potentially covered liability.
Williams currently guarantees our obligations under the revolving credit
agreement, the interim loan facility and the asset defeasance program, each of
which we describe in the section of this prospectus entitled "Description of
Indebtedness and Other Financing Arrangements." Williams' guarantee of our
obligations under the asset defeasance program will continue following the
offerings. Williams' guarantee of the revolving credit agreement and interim
loan facility will continue following the offerings until these agreements are
terminated and replaced by a new permanent credit facility. Williams also has
guaranteed and entered into other
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contingent obligations in connection with financings by ATL in total amount of
approximately $53 million.
REGISTRATION RIGHTS AGREEMENT
We and Williams have entered into a registration rights agreement which
provides that, upon the request of Williams, we will use our reasonable efforts
to effect the registration under the applicable federal and state securities
laws of any shares of common stock, and any other securities issued in
connection in respect of or exchange for the common stock, held by Williams and
will take any other action necessary to permit the sale of these securities in
other jurisdictions, subject to certain specified limitations. However, Williams
has advised us that it has no current plan or intention to dispose of its shares
of our Class B common stock. For the foreseeable future, Williams will also have
the right, which it may exercise at any time and from time to time, to include
shares of common stock held by it in certain other registrations of our common
equity securities we initiate on our own behalf or on behalf of other
stockholders. Williams will pay the out-of-pocket costs and expenses of
registration for registrations which it initiates. We have agreed to pay all
out-of-pocket costs and expenses, other than underwriting discounts and
commissions, in connection with the registrations we initiate in which Williams
participates. Our restated certificate of incorporation provides that any shares
of Class B common stock sold or otherwise transferred to any person other than a
Williams affiliate are automatically converted into common stock.
ADMINISTRATIVE SERVICES AGREEMENT
The administrative services agreement provides for Williams to continue to
provide similar financial management services, information services, legal and
contract services, risk management, human resources services, corporate planning
and other management support services to us as it has in the past. Under the
terms of the administrative services agreement, all of the services will be
rendered by Williams or subsidiaries of Williams subject to our oversight,
supervision and approval through our board of directors.
The administrative costs we will pay to Williams and its subsidiaries
pursuant to the administrative services agreement are allocated pursuant to an
established formula based on actual costs and is believed to be equal to or less
than the fees that would be paid if these services were to be provided by an
independent third party.
The administrative services agreement will become effective upon the
completion of the equity offering and shall terminate on December 31, 2005
unless earlier terminated by Williams or us. The administrative services
agreement would be automatically renewed for additional terms of two years
unless either party gives at least six months' written notice prior to a
scheduled termination date. The administrative services agreement can be
terminated upon a material breach by either party and will be terminated upon a
change of control of our company. A change of control shall be deemed to have
occurred if:
(a) Williams or the companies controlled by Williams should own shares
representing less than the majority of the voting power of our
then-outstanding common stock;
(b) the majority of the seats of our board of directors shall be occupied
by persons who are neither nominated by Williams or by our board of
directors, nor appointed by our directors so nominated; or
(c) any person or group other than Williams and the companies controlled by
Williams shall directly or indirectly have the power to exercise a
controlling influence over us.
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Upon a change of control, we will enter into good faith negotiations with
Williams concerning an acceptable form of transition agreement providing for
Williams to make available, at cost, necessary services to us until a time when
we can provide these services for ourselves or obtain them from some other
source.
Williams and its affiliates incur certain costs on our behalf, primarily
insurance coverage and related risk management services provided by
non-affiliates, benefits provided to our employees under Williams' benefit
plans, payroll administration, bank fees, certain utility costs, employee
relocation and other costs. Williams and its affiliates either directly charge
these costs to us or, for a shared service or cost, allocate a portion of these
costs to us based for insurance coverage on various risk exposure factors and
otherwise primarily on actual usage.
The amount paid by us during the year ended December 31, 1998 for all of
the services provided during that year that in the future will be provided under
the administrative services agreement was approximately $25 million.
SERVICE AGREEMENT
We have entered into a service agreement with Williams Information Services
Corporation, a wholly-owned subsidiary of Williams. Under this agreement, WISC
will provide data processing computer-related services to us. These services
include mainframe operations, help desk support, network services, mid-range
operations, general data center operations, disaster recovery, technical
support, development services and hardware and software procurement assistance.
Services are generally charged at cost on a usage basis plus a 15% management
fee. Any procured items are transferred at actual cost. The amount paid by us
during the year ended December 31, 1998 for all of the services provided during
that year that in the future will be provided under the service agreement was
$4,786,000.
LEASE AGREEMENT
We have leases with various Williams affiliates providing for the leasing
of office and other space. The total charges for leased space during the year
ended December 31, 1998 for leases provided during that year that in the future
will be provided under lease agreements was $3,971,000. The lease charges are
based on occupied square footage and terms approximate market. In addition, we
reimburse Williams affiliates for the cost of leased space utilized by our
employees at these affiliates' locations.
CROSS-LICENSE AGREEMENT
The cross-license agreement addresses Williams' and our respective rights
and obligations after the equity offering with respect to intellectual property,
inventions and trademarks and trade names as well as the use of proprietary
information by employees of Williams and us. Williams and WISC license at no
cost to us certain intellectual property to us, effective as of the equity
offering. Similarly we will cross license at no cost to Williams certain
intellectual property to Williams on the same terms as their license to us.
Among other things, for so long as Williams shall beneficially own at least 50%
of the voting power of our outstanding common stock, we are permitted to
continue our use of the Williams trademark and brand names.
TECHNICAL, MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The technical, management and administrative services agreement provides
for Williams to continue to provide to us the same management services relating
to our international operations and investments after the offerings as it has in
the past. Under the terms of the management
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agreement, all of the services will be rendered by Williams or subsidiaries of
Williams subject to our oversight, supervision and approval through our board of
directors.
The management costs we will pay to Williams and its subsidiaries pursuant
to the management agreement are allocated pursuant to an established formula
based on actual costs and is believed to be equal to or less than the fees that
would be paid if these services were to be provided by an independent third
party.
CONFLICTS OF INTEREST
Conflicts of interest may arise between us and Williams in a number of
areas relating to our past and ongoing relationships with Williams, including
potential acquisitions of businesses or properties or other corporate
opportunities, potential competitive business activities, the election of new or
additional directors, payment of dividends, incurrence or repayment of debt, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administration of benefits plans, service arrangements,
issuances of our capital stock, sales or distributions by Williams of its shares
of our Class B common stock, the exercise of the right to purchase Williams'
investment in Algar and the exercise by Williams of its ability to control our
management and affairs. Although the separation agreement contains certain
non-compete provisions, in many circumstances we and Williams are free to
compete with one another.
We and Williams may enter into material transactions and agreements in the
future in addition to those described above. Our board of directors will utilize
procedures in evaluating the terms and provisions of any material transactions
between us and Williams or its affiliates as our board of directors may deem
appropriate in light of its fiduciary duties under state law. In any evaluation,
our board of directors may rely on management's statements and opinions and may
or may not utilize outside experts or consultants or obtain independent
appraisals or opinions. One of our directors is both a senior officer and
director, and six of our directors are also senior officers, of Williams. These
directors and officers may have conflicts of interest with respect to matters
potentially or actually involving or affecting us or Williams, such as
acquisitions, financing and other corporate opportunities that may be suitable
both for us and for Williams. To the extent that opportunities arise, these
directors may consult with their legal advisors and make a determination after
considering a number of factors, including whether such an opportunity is within
our line of business or consistent with our strategic objectives and whether we
will be able to undertake or benefit from a particular opportunity. In addition,
determinations may be made by our board of directors, and when appropriate, by
the vote of the disinterested directors only. Despite the foregoing, there can
be no assurance that conflicts will be resolved in our favor.
For so long as Williams controls at least 50% of the voting power of our
outstanding capital stock, our directors and officers will, subject to certain
limitations, be indemnified by Williams and insured under insurance policies
maintained by Williams against liability for actions taken, or omitted to be
taken, in their capacities as our directors and officers, including actions or
omissions that may be alleged to constitute breaches of the fiduciary duties
owed by our directors and officers to us and our stockholders. This insurance
may not be applicable to certain of the claims which Williams may have against
us under the indemnification agreement or otherwise.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions of our capital
stock. For a more detailed description, see our restated certificate of
incorporation and by-laws, copies of which we have filed as exhibits to the
registration statement, and the applicable provisions of Delaware law.
Immediately prior to the closing of the equity offering, we will restate
our certificate of incorporation to change our authorized capital stock to
1,000,000,000 shares of Class A common stock (which we refer to as common stock
in this prospectus), 500,000,000 shares of Class B common stock and 500,000,000
shares of preferred stock, par value $0.01 per share, and to convert all 1,000
outstanding shares of our current common stock into a total of ________ shares
of our newly created Class B common stock.
COMMON STOCK AND CLASS B COMMON STOCK
GENERAL
The holders of common stock and Class B common stock have identical rights
except with respect to voting, conversion and transfer.
VOTING RIGHTS
Holders of our common stock are entitled to one vote per share on all
matters to be voted on by stockholders, while holders of Class B common stock
are entitled to ten votes per share. Holders of shares of common stock and Class
B common stock are not entitled to cumulate their votes in the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all holders of common
stock and Class B common stock present in person or represented by proxy, voting
together as a single class, subject to any voting rights granted to holders of
any preferred stock. Except as otherwise provided by law or in our restated
certificate of incorporation, and subject to any voting rights granted to
holders of any outstanding preferred stock, amendments to our restated
certificate of incorporation must be approved by a majority of the votes
entitled to be cast by all holders of common stock and Class B common stock
present in person or represented by proxy, voting together as a single class.
However, amendments to our restated certificate of incorporation that would
alter or change the powers, preferences or special rights of the common stock so
as to affect them adversely also must be approved by a majority of the votes
entitled to be cast by the holders of the common stock, voting as a separate
class. Any amendment to our restated certificate of incorporation to increase
the authorized shares of any class requires the approval only of a majority of
the votes entitled to be cast by all holders of common stock and Class B common
stock present in person or represented by proxy, voting together as a single
class, subject to the rights set forth in any series of preferred stock created
as described below.
DIVIDENDS
Holders of our common stock and Class B common stock will share equally on
a per share basis in any dividend declared by the board of directors, subject to
any preferential rights of any outstanding preferred stock. Dividends consisting
of shares of common stock and Class B common stock may be paid only as follows:
(a) shares of common stock may be paid only to holders of common stock, and
shares of Class B common stock may be paid only to holders of Class B common
stock; and
(b) the number of shares so paid will be equal on a per share basis with
respect to each outstanding share of common stock and Class B common stock.
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We may not split, reclassify, subdivide or combine shares of either class
of common stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class.
ISSUANCE OF CLASS B COMMON STOCK, OPTIONS OR WARRANTS
Subject to certain provisions regarding dividends and other distributions
described above and except for payment of the purchase price for the Algar
option, we will not be entitled to issue additional shares of Class B common
stock, or issue options, rights or warrants to subscribe for additional shares
of Class B common stock, except that we may make a pro rata offer to all holders
of common stock of rights to purchase additional shares of the class of common
stock held by them. The common stock and the Class B common stock will be
treated equally with respect to any offer we make to holders of common stock of
options, rights or warrants to subscribe for any of our other capital stock.
MERGER OR CONSOLIDATION
In the event of a merger or consolidation, the holders of common stock and
Class B common stock will be entitled to receive the same per share
consideration, if any, except that if the consideration includes voting
securities, or the right to acquire voting securities or securities exchangeable
for, or convertible into, voting securities, we may, but are not required to,
provide for the holders of Class B common stock to receive consideration
entitling them to ten times the number of votes per share as the consideration
being received by holders of the common stock.
CONVERSION OF CLASS B COMMON STOCK
Our Class B common stock will be convertible into common stock on a
share-for-share basis at the option of the holder at any time, or automatically
upon transfer to a person or entity which is not a permitted transferee. In
general, permitted transferees will include Williams, its direct and indirect
subsidiaries, any person or entity in which Williams or any successor
beneficially owns, directly or indirectly, at least 50% of the equity or the
voting securities, any successor of any of the foregoing and stockholders of
Williams who receive our Class B common stock in a tax-free spin-off. A tax-free
spin-off generally means a transaction in which stockholders of Williams receive
shares of our common stock or Class B common stock as a distribution with
respect to, or in exchange for, stock of Williams without being required to
recognize gain or loss for federal income tax purposes by reason of Section 355
of the Code (or any corresponding provision of any successor statute). Following
any distribution of Class B common stock to stockholders of Williams, shares of
Class B common stock will no longer be convertible into shares of common stock.
Shares of Class B common stock transferred to stockholders of Williams in a
tax-free spin-off will not be converted into shares of common stock and,
following a tax-free spin-off, shares of Class B common stock will be
transferable as Class B common stock, subject to applicable laws.
PREFERRED STOCK
Our board of directors is empowered, without approval of the stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, and the board of directors may fix the numbers of shares of each series
and the designation, powers, privileges, preferences and rights and the
qualifications, limitations and restrictions of the shares of each series.
The specific matters that our board of directors may determine include the
following:
- the designation of each series
- the number of shares of each series
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- the rate of any dividends
- whether any dividends shall be cumulative or non-cumulative
- the terms of any redemption
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of our company
- rights and terms of any conversion or exchange
- restrictions on the issuance of shares of the same series or any other
series
- any voting rights
The Series A preferred stock described below under "-- Stockholder rights
plan" is a series of preferred stock that has been authorized by our board.
Although no shares of preferred stock are currently outstanding and we have
no current plans to issue preferred stock, the issuance of shares of preferred
stock, or the issuance of rights to purchase shares of preferred stock, could be
used to discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by issuing a series of preferred stock containing
class voting rights that would enable the holder or holders of this series to
block such a transaction. Alternatively, a business combination could be
facilitated by issuing a series of preferred stock having sufficient voting
rights to provide a required percentage vote of the stockholders. In addition,
under certain circumstances, the issuance of preferred stock could adversely
affect the voting power and other rights of the holders of the common stock.
Although our board is required to make any determination to issue any preferred
stock based on its judgment as to the best interests of our stockholders, it
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over prevailing market prices of the stock. Our board does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or applicable stock exchange
requirements.
LIMITATION ON LIABILITY OF DIRECTORS
Our restated certificate of incorporation provides, as authorized by
Section 102(b)(7) of the Delaware General Corporation Law, that our directors
will not be personally liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability imposed by law, as
in effect from time to time, for the following:
- any breach of the director's duty of loyalty to our company or our
stockholders
- any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL
- any transaction from which the director derived an improper personal
benefit
The inclusion of this provision in our restated certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against our directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
our company and our stockholders.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the time a
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stockholder became an interested stockholder unless, as described below, certain
conditions are satisfied. Thus, it may make acquisition of control of our
company more difficult. See "-- Limitations on changes of control of our
company" below. The prohibitions in Section 203 of the DGCL do not apply if the
following occur:
- prior to the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of our company outstanding at the time the
transaction commenced
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder
Under Section 203 of the DGCL, a business combination includes the
following:
- any merger or consolidation of our company with the interested
stockholder
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of our company, to or with the interested stockholder of
assets of our company having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of our
company or the aggregate market value of all the outstanding stock of our
company
- certain transactions resulting in the issuance or transfer by our company
of our stock to the interested stockholder
- certain transactions involving our company which have the effect of
increasing the proportionate share of the stock of any class or series of
our company which is owned by the interested stockholder
- certain transactions in which the interested stockholder receives
financial benefits provided by us
Under Section 203 of the DGCL, an interested stockholder generally is one
of the following:
- any person that owns 15% or more of the outstanding voting stock of our
company
- any person that is an affiliate or associate of our company and was the
owner of 15% or more of the outstanding voting stock of our company at
any time within the three-year period prior to the date on which it is
sought to be determined whether that person is an interested stockholder
- the affiliates or associates of that person
Because Williams will own more than 15% of our voting stock before we
become a public company and upon completion of the equity offering, Section 203
of the DGCL by its terms is currently not applicable to business combinations
with Williams even though Williams owns 15% or more of our outstanding stock. If
any other person acquires 15% or more of our outstanding stock, that person will
be subject to the provisions of Section 203 of the DGCL.
PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Our by-laws contain provisions requiring that advance notice be delivered
to us of any business to be brought by a stockholder before an annual or special
meeting of stockholders and providing for certain procedures to be followed by
stockholders in nominating persons for election
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to our board. Generally, these advance notice provisions require that the
stockholder must give written notice to the secretary of our company:
- in the case of an annual meeting, not less than 90 days nor more than 120
days before the first anniversary of the preceding year's annual meeting
of stockholders
- in the case of a special meeting, not less than 90 days, or, if later, 10
days after the first public announcement of the date of the special
meeting, nor more than 120 days prior to the scheduled date of such
special meeting
In each case, the notice must set forth specific information regarding the
stockholder giving the notice and each director nominee or other business
proposed by the stockholder, as applicable, as provided in our by-laws.
Notwithstanding the foregoing, any stockholder, including Williams, who together
with its affiliates owns capital stock entitled to exercise a majority of the
voting power in an election of directors, may nominate one or more individuals
for election as directors by giving notice to our company not later than five
days before the scheduled date for the election of directors. Generally, only
business set forth in the notice for a special meeting of stockholders may be
conducted at a special meeting.
Our by-laws provide, in accordance with our restated certificate of
incorporation, that except as may be provided in connection with the issuance of
any series of preferred stock, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the whole
board, as that term is defined in our restated certificate of incorporation. Our
restated certificate of incorporation provides for a classified board of
directors, consisting of three classes as nearly equal in size as practicable.
Each class holds office until the third annual stockholders' meeting for
election of directors following the most recent election of that class, except
that the initial terms of the three classes expire in 2000, 2001 and 2002. See
the section of the prospectus entitled "Management -- Our directors" for more
information.
Subject to the rights of the holders of any series of preferred stock to
elect and remove additional directors under specified circumstances, on or after
the time when Williams and its affiliates own less than 50% of the voting power
of our then-outstanding capital stock, a director of our company may be removed
only for cause by affirmative vote of the holders of at least a majority of the
voting power of all of our outstanding shares generally entitled to vote in the
election of directors, voting together as a single class, and vacancies on our
board may only be filled by the affirmative vote of a majority of the remaining
directors. Prior to the time when Williams and its affiliates own less than 50%
of our then-outstanding capital stock, subject to the rights of holders of any
series of preferred stock, a director of our company may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the voting power of all voting stock then outstanding, voting together as a
single class, and vacancies on our board may be filled only by the affirmative
vote of at least 80% of the remaining directors then in office.
Our restated certificate of incorporation provides that, on or after the
time when Williams and its affiliates own less than 50% of our then-outstanding
capital stock, stockholders may not act by written consent in lieu of a meeting.
On or after the time when Williams and its affiliates own less than 50% of our
then-outstanding capital stock, special meetings of the stockholders may be
called only by a majority of the whole board, but may not be called by
stockholders. Before the time when Williams and its affiliates own less than 50%
of our then-outstanding capital stock, the secretary of our company is required
to call a special meeting of the stockholders at the request of Williams or its
affiliates and stockholder action may be taken by written consent in lieu of a
meeting.
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In general, our by-laws may be altered or repealed and new by-laws adopted
by the holders of a majority of the voting stock or by a majority of the whole
board. However, certain provisions, including those relating to the limitation
of actions by stockholders taken by written consent, the calling of special
stockholder meetings, other stockholder actions and proposals and certain
matters related to our board, may be amended only by the affirmative vote of
holders of at least 80% of the total voting stock.
LIMITATIONS ON CHANGES OF CONTROL OF OUR COMPANY
The provisions of our restated certificate of incorporation and by-laws
described above, as well as the stockholder rights plan described below and the
provisions of Section 203 of the DGCL, could have the following effects, among
others:
- delaying, deferring or preventing a change in control
- delaying, deferring or preventing the removal of existing management
- deterring potential acquirors from making an offer to our stockholders
- limiting any opportunity of our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirors
Any of the above could occur, notwithstanding that a majority of our
stockholders might benefit from such a change in control or offer.
TRANSACTIONS AND CORPORATE OPPORTUNITIES
Our restated certificate of incorporation includes provisions which
regulate and define the conduct of certain business and affairs of our company
from the time of the completion of the equity offering until the time Williams
ceases to be a significant stockholder of our company. These provisions serve to
determine and delineate the respective rights and duties of our company,
Williams, and some of our directors and officers in anticipation of the
following:
- directors, officers and/or employees of Williams may serve as directors
of our company
- Williams may engage in lines of business that are the same, similar or
related to, overlap or compete with our lines of business, subject to the
separation agreement
- our company and Williams will engage in material business transactions,
including pursuant to the various agreements described above
Our company may, from time to time, enter into and perform agreements with
Williams to engage in any transaction, and to agree to compete or not to compete
with each other, including to allocate, or to cause their respective directors,
officers and employees to allocate, corporate opportunities between themselves.
Our restated certificate of incorporation provides that no such agreement, or
its performance, shall be considered contrary to any fiduciary duty of Williams,
as the controlling stockholder of our company, or of any such director, officer
and/or employee, if any of the following conditions are satisfied:
- the agreement was entered into before our company ceased to be a
wholly-owned subsidiary of Williams and is continued in effect after this
time
- the agreement or transaction was approved, after being made aware of the
material facts of the relationship between our company and Williams and
the material terms and facts of the agreement or transaction, by:
- our board, by affirmative vote of a majority of directors who are not
interested persons
- by a committee of our board consisting of members who are not
interested persons, by affirmative vote of a majority of those members
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- by one or more of our officers or employees who is not an interested
person and who was authorized by our board or a board committee as
specified above or, in the case of an employee, to whom authority has
been delegated by an officer to whom the authority to approve such an
action has been so delegated
- the agreement or transaction was fair to our company as of the time it
was entered into by our company
- the agreement or transaction was approved by affirmative vote of a
majority of the shares of capital stock entitled to vote and who do vote
on the agreement or transaction, excluding Williams and any interested
person in respect of such agreement or transaction
For purposes of these provisions, an interested person is generally an
individual who has a personal financial interest in the relevant transaction.
The provisions of our restated certificate of incorporation with regard to
such transactions and/or corporate opportunities shall terminate when Williams,
together with its affiliates, ceases to be the owner of voting stock
representing 25% or more of the votes entitled to be cast by the holders of all
the then outstanding voting stock; provided, however, that the termination shall
not terminate the effect of these provisions with respect to any agreement
between our company and Williams that was entered into before the time of
termination or any transaction entered into in the performance of such
agreement, whether entered into before or after such time, or any transaction
entered into between our company and Williams or the allocation of any
opportunity between them before such time. These provisions do not alter the
fiduciary duty of loyalty of our directors under applicable Delaware law. By
becoming a stockholder in our company, you will be deemed to have notice of and
have consented to these provisions of our restated certificate of incorporation.
LISTING
We have applied for our common stock to be listed on the New York Stock
Exchange under the symbol "WCG."
TRANSFER AGENT
Our transfer agent and registrar for our common stock is The Bank of New
York.
STOCKHOLDER RIGHTS PLAN
Our board has adopted a stockholder rights plan. Pursuant to the rights
plan, one right will be issued and attached to each outstanding share of capital
stock. Each right will entitle the holder, in circumstances described below, to
purchase from our company a unit consisting of one one-hundredth of a share of
Series A junior preferred stock, par value $0.01 per share, at an exercise price
of $100 per right, subject to adjustment in certain events.
Initially, the rights will be attached to all certificates representing
outstanding shares of capital stock and will be transferred with and only with
these certificates. The rights will become exercisable and separately
certificated only upon the distribution date, which will occur upon the earlier
of the following:
- ten business days following a public announcement that a person or group
other than certain exempt persons has acquired or obtained the right to
acquire beneficial ownership of 15% or more of the shares of common stock
then outstanding
- ten business days, or later if determined by our board prior to any
person acquiring 15% or more of the shares of common stock then
outstanding, following the commencement or
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announcement of an intention to commence a tender offer or exchange offer
that would result in a person or group becoming an acquiring person
As soon as practicable after the distribution date, certificates will be
mailed to holders of record of capital stock as of the close of business on the
distribution date. From and after the distribution date, the separate
certificates alone will represent the rights. Prior to the distribution date,
all shares of capital stock issued will be issued with rights. Shares of capital
stock issued after the distribution date will not be issued with rights, except
that shares issued pursuant to any of the following that exist prior to the
distribution date may be issued with rights:
- the exercise of stock options that exist prior to the distribution date
- under employee plans or arrangements that exist prior to the distribution
date
- upon exercise, conversion or exchange of certain securities
- in other cases as may be deemed appropriate by our board
The final expiration date of the rights will be at the close of business on
June 30, 2009, unless earlier redeemed or exchanged by us as described below.
In the event that a person acquires 15% or more of the shares of common
stock then outstanding, except pursuant to any action or transaction approved by
our board before the person acquires 15% or more of the shares of common stock
then outstanding, each holder of a right other than that person and certain
related parties, whose rights will automatically become null and void, will
thereafter be entitled to receive, upon exercise of the right, a number of
shares of common stock, or, in certain circumstances, cash, property or other
securities of our company, having a current market price averaged over the
previous 30 consecutive trading days equal to two times the exercise price of
the right.
In the event that, at any time on or after a person acquires 15% or more of
the shares of common stock then outstanding, our company effects a merger or
other business combination in which it is not the surviving entity, or any
shares of our capital stock are changed into or exchanged for other securities,
or 50% or more of its assets, cash flow or earning power is sold or transferred,
then each holder of a right, except rights owned by any person who has acquired
15% or more of the shares of common stock then outstanding or certain related
parties, which will have become void as set forth above, shall thereafter have
the right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a fair market value equal to two times the exercise
price of the right.
The exercise price payable, and the number of units of Series A preferred
stock, shares of capital stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution in the event of a stock dividend or distribution on the capital stock,
a grant or distribution to holders of the capital stock of certain subscription
rights, warrants, evidence of indebtedness, cash or other assets, or other
similar events.
No fractional units will be issued. In lieu thereof, an adjustment in cash
will be made based on the market price of the common stock on the last trading
date prior to the date of exercise. Pursuant to the rights plan, we reserve the
right to require prior to the occurrence of one of the events that triggers the
ability to exercise the rights that, upon any exercise of rights, a number of
rights be exercised so that only whole shares of Series A preferred stock will
be issued.
We will also have the option, at any time after a person acquires 15% or
more of our capital stock as described above on and before that person becomes,
or simultaneously with that person becoming, the beneficial owner of 50% or more
or the shares of rights plan voting stock then outstanding, to exchange the
rights, other than rights owned by an acquiring person or certain
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related parties, which will have become void, in whole or in part, at an
exchange ratio of one share of capital stock, and/or other equity securities
deemed to have the same value as one share of capital stock, per right, subject
to adjustment.
At any time prior to the close of business on the tenth business day
following the stock acquisition date, our company, by vote of a majority of our
board, may redeem the rights in whole, but not in part, at a price of $0.01 per
right, payable, at our option, in cash, shares of capital stock or such other
consideration as our board may determine. The rights will terminate at the time
so designated by our board and thereafter the only right of the holders of
rights will be to receive the redemption price.
For as long as the rights are redeemable, our company may, except with
respect to the redemption price, amend the rights plan in any manner, including
to extend the time period in which the rights may be redeemed. After the time
the rights cease to be redeemable, we may amend the rights in any manner that
does not materially adversely affect the interests of holders of the rights as
such. Until a right is exercised, the holder, as such, will have no rights as a
stockholder of our company, including the right to vote or to receive dividends.
Our restated certificate of designations of the Series A preferred stock
provides that each share of Series A preferred stock that may be issued upon
exercise of the rights will be entitled to receive, when, as and if declared,
cash and non-cash dividends equal to:
- a dividend multiple of 100 times the aggregate per share amount of all
cash and non-cash dividends declared or paid on the common stock, subject
to adjustments for stock splits or dividends payable in common stock or
reclassifications of common stock
- preferential quarterly cash dividends of $.01 per share, less any
dividends received
Holders of Series A preferred stock will have a vote multiple of 100 votes
per share, subject to adjustments for stock splits or dividends payable in
common stock or reclassifications of common stock and, except as otherwise
provided by the certificate of designations, our restated certificate of
incorporation or applicable law, shall vote together with holders of capital
stock as a single class. In the event that the preferential quarterly cash
dividends are in arrears for six or more quarterly dividend payment periods,
holders of Series A preferred stock will have the right to elect two additional
members to our board, to serve until the next annual meeting of our company or
until such earlier time as all accrued and unpaid preferential quarterly cash
dividends are paid in full.
In the event of the liquidation, dissolution or winding up of our company,
after provision for liabilities and any preferential amounts payable with
respect to any preferred stock ranking senior to the Series A preferred stock,
the holders of any Series A preferred stock will be entitled to receive
liquidation payments per share in an amount equal to the greater of the
following:
- $100.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon to the date of payment
- a liquidation multiple of 100 times the aggregate amount to be
distributed per share to holders of capital stock, subject to adjustments
for stock splits or dividends payable in common stock or
reclassifications of common stock
The rights of the Series A preferred stock as to dividends, voting and
liquidation are protected by antidilution provisions.
In the event of a consolidation, merger or other transaction in which the
shares of capital stock are exchanged, holders of shares of Series A preferred
stock will be entitled to receive the amount and type of consideration equal to
the per share amount received by the holders of the
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capital stock, multiplied by the highest of the dividend multiple, the vote
multiple or the liquidation multiple as in effect immediately prior to the
event.
Except for the acquisition of shares of Series A preferred stock in any
other manner permitted by law, our certificate of designations or our restated
certificate of incorporation, the shares of Series A preferred stock are not
redeemable at the option of our company or any holder thereof.
The rights will have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire our company
without the approval of our board. As a result, the overall effect of the rights
may be to render more difficult or discourage any attempt to acquire our
company, even if such acquisition may be in the interest of our stockholders.
Because our board can redeem the rights or approve a permitted offer, the rights
will not interfere with a merger or other business combination approved by our
board.
The rights plan excludes Williams and its affiliates and associates from
being considered acquiring persons until Williams first ceases to beneficially
own 15% or more of the rights plan voting stock then outstanding.
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DESCRIPTION OF INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS
The following are summaries of the material provisions of our debt
agreements, copies of which we have filed as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable law. See the section of this prospectus entitled "Where You Can Find
Additional Information" for more information.
NOTES
GENERAL
The notes are to be issued under an indenture, to be dated as of
____________, 1999, between us and The Bank of New York, as trustee. The notes
are general unsecured senior obligations of ours, and will rank on a parity with
all our other unsecured senior indebtedness.
The notes will be limited to $1.3 billion aggregate principal amount and
will mature on ____________ , 200_. Interest on the notes will be payable on
____________ and ____________ of each year, commencing ____________ at the rate
of ____% per annum. Prior to ____________, 200_, we may redeem all or part of
the notes at any time at a make-whole price specified in the indenture. In
addition, any time or from time to time prior to ____, 2002, we may redeem up to
35% of the aggregate principal amount of the notes at a redemption price equal
to ______% of the principal amount of the notes so redeemed, with the net cash
proceeds of one or more offerings of common stock as described in the indenture.
The notes will also be redeemable, at our option, in whole or in part, at any
time after ____________, 200__, at redemption prices starting at ____% of their
principal amount and declining to 100% of their principal amount on or after
____________, plus accrued and unpaid interest. Upon a change of control of our
company, each note holder will have the right to require us to purchase that
holder's notes.
COVENANTS
The indenture contains certain restrictive covenants, including, among
others, the following:
- a limitation on our ability and that of our subsidiaries to incur
indebtedness
- a limitation on our ability and that of our subsidiaries to, directly or
indirectly, make certain payments, including payment of dividends,
prepayment of subordinated indebtedness, the repurchase of capital stock
and making of investments
- a limitation on our ability to allow to exist certain dividend and other
payment restrictions affecting our subsidiaries
- a limitation on our ability to sell or to permit any subsidiary to issue
or sell capital stock of a subsidiary
- a limitation on our ability and that of our subsidiaries to consummate
certain asset dispositions unless certain conditions are fulfilled
- limitations on transactions with affiliates
- limitations on our ability and that of our subsidiaries to incur liens
In addition, the indenture limits our ability to merge with or to transfer
all or substantially all of our assets to another person. Except as set forth
above, the indenture does not contain any material quantitative financial
requirements. The notes provide for acceleration upon customary events of
default.
As of the date of the indenture, all of our subsidiaries will be subject to
the restrictive covenants described above. However, if we meet certain
conditions, we have the ability to designate subsidiaries as "unrestricted,"
which means they will no longer be subject to these covenants.
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REVOLVING CREDIT FACILITIES
We currently have available loan commitments under an unsecured revolving
credit facility with various banks which includes as borrowers Williams and some
of its other subsidiaries. This credit facility terminates in July 2002. Our
solutions unit may borrow up to $300 million and we may borrow up to $400
million under this credit facility. Our $400 million commitment is guaranteed by
Williams. We have agreed that our combined borrowings under this commitment will
not exceed $400 million. Borrowings under this credit facility are generally for
30- to 90-day terms and bear interest at LIBOR plus 75 to 85 basis points. We
currently have no outstanding borrowings under this credit facility.
INTERIM LOAN FACILITY
In April 1999, we entered into a $1.4 billion unsecured revolving interim
loan facility with four banks which terminates on September 30, 1999. Our
interim loan obligations are guaranteed by Williams. Borrowings under this
interim loan facility are generally for 30-day terms and bear interest at LIBOR
plus 75 basis points. At the date of this prospectus, we have approximately $500
million in outstanding borrowings under this credit facility. We intend to repay
all of the then-outstanding borrowings under this facility with the proceeds
from the offerings and the concurrent investments. The balance of any new
borrowings will be repaid and the commitment terminated upon implementation of
our new permanent credit facility described below.
PERMANENT CREDIT FACILITY
Bank of America, N.A. and The Chase Manhattan Bank have committed to
provide a $1.0 billion credit facility for our subsidiary, Williams
Communications, Inc., described below. The commitment requires that the facility
be entered into on or before September 1, 1999. The credit facility will consist
of a $500 million seven-year senior multi-draw amortizing term loan facility and
a $500 million six-year senior reducing revolving credit facility. We may borrow
under the term loan facility during a one-year period beginning on the
commencement date of the credit facility. We may borrow under the revolving
credit facility throughout its six-year term.
The loans will bear interest based on our debt ratings by Standard & Poors
Investor Services, Inc. and Moody's Investors Services Inc. We expect the
initial annual rate of interest to be LIBOR plus 2.25%.
Term loans must be repaid beginning in the fourth year of the term loan
facility: 15% of the term loans must be repaid during the fourth year, 25%
during the fifth year, 30% during the sixth year and 30% during the seventh
year. The commitments under the revolving credit facility will be permanently
reduced by 20% in the fourth year, by 30% in the fifth year, and by 50% in the
sixth year. We must repay amounts borrowed under the revolving credit facility
to the extent these amounts are in excess of the remaining commitments.
We are required to prepay the loans by an amount equal to:
- 100% of net cash proceeds from sales of assets to the extent these
proceeds are not reinvested in core assets or permitted acquisitions
- 50% of excess cash flow beginning in 2001
- 100% of net cash proceeds received from the issuance of debt after the
offerings, except permitted debt
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Prepayment is not required from excess cash flow and is required from only
50% of the proceeds received from issuing debt if the ratings assigned to the
facilities by Standard & Poors and Moody's are not less than BBB- and Baa3,
respectively, or if the ratio of total debt to adjusted EBITDA is less than 3.5
to 1.0. The lenders may terminate the permanent credit facility and declare all
loans outstanding under the permanent credit facility due and payable if an
event of default occurs under the permanent credit facility. Events of default
under the permanent credit facility include:
- nonpayment of principal or other amounts due under the facilities
- material misrepresentations
- covenant violations
- a cross-default to our other material debt
- certain bankruptcy and ERISA events
- material judgments
- a downgrade by Standard & Poors or Moody's of the senior unsecured debt
of Williams to less than BBB- or Baa3, respectively
- a change of control of our company
The loans shall be unsecured except that if at any time the rating for the
permanent credit facility assigned by Standard & Poors is less than BB- or by
Moody's is less than Ba3, we must provide the lenders with security interests
and liens upon substantially all of our assets.
The credit facility will contain restrictive and financial maintenance
covenants. Restrictive covenants will include limitations on:
- additional debt
- leases
- creation of liens
- guarantees
- sales of assets
- mergers, consolidations, liquidations and dissolutions
- investments, loans and advances
- dividends and other payments with respect to our capital stock and common
stock of our subsidiaries
- material changes to our charter or the indenture for the notes
- sale and leaseback transactions
- material changes in our lines of business
Financial maintenance covenants will include:
- a total debt to contributed capital requirement
- a minimum EBITDA plus dark fiber sales cash revenues requirement
- a limitation on capital expenditures
- a total debt to adjusted EBITDA requirement
- a senior debt to adjusted EBITDA requirement
- an adjusted EBITDA to interest expense requirement
The terms of and exceptions to these covenants have not been determined.
The commitment is subject to a number of significant conditions including:
- no material adverse condition or change affecting our business,
operations, conditions or prospects
- completion of and satisfaction with a due diligence inspection of us
- no material disruption of or adverse change in financial, banking or
capital markets
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- negotiation, execution and delivery of definitive loan documentation on
or before September 1, 1999
- receipt of either gross proceeds from the equity offering and the
concurrent investments of not less than $1 billion and gross proceeds
from the notes offering of not less than $1.3 billion, or a Williams
guarantee of our obligations under the permanent credit facility
Our ability to borrow under the permanent credit facility is subject to
additional conditions, many of which require lender satisfaction or are based on
lender determination.
The lenders intend to syndicate all or part of their commitments to a group
of financial institutions. We have agreed that pricing, structure, amount and
other terms of the facilities may be changed if the lenders determine advisable
to ensure successful syndication or optimal credit structure. We may however
reject such changes and terminate the commitments.
We expect to borrow the amounts necessary under the permanent credit
facility to repay the interim loan facility and as and when needed for our
capital investment plan and for working capital and general corporate purposes.
WILLIAMS NOTE
To fund our operations, we historically have received capital contributions
from Williams and interest-bearing advances from Williams and an affiliate of
Williams at floating rates of interest established at specified margins above
benchmark rates. As of March 31, 1999, Williams' total capital contributions to
us were approximately $1.4 billion and our borrowings provided by Williams were
$818.1 million at an annual interest rate of LIBOR plus 75 basis points, the
rate paid on our current credit facility. At the time of completion of the
offerings, we estimate that we will have approximately $1.0 billion in
borrowings from Williams. At that time, these borrowings will be converted into
a seven-year amortizing note payable by Williams Communications, Inc. to
Williams that will bear interest at an annual rate based on our credit rating,
expected initially to be LIBOR plus 2.25%. Principal will be due and payable
quarterly beginning no earlier than June 30, 2000 based on an earnings formula,
but we will pay not less than $12.5 million in 2000 and $25 million in principal
annually after 2000. The Williams note will be due and payable in full upon a
change of control of our company. We plan to amend the Williams note to more
closely resemble the terms and conditions of the permanent credit facility after
the completion of the offerings.
The Williams note will rank senior to the notes. It will rank equal to the
permanent credit facility except to the extent the permanent credit facility is
secured and as set forth in an intercreditor agreement to be entered into by
Williams and the credit facility lenders. Under the intercreditor agreement,
Williams will agree that the Williams note will be subordinated to rights of the
lenders in any bankruptcy, insolvency, liquidation or dissolution of the
borrower and in the event of default under the credit facility, with some
exceptions to be negotiated.
ASSET DEFEASANCE PROGRAM
During 1998, we entered into an asset defeasance program in the form of an
operating lease agreement covering a portion of the Williams network with a
group of financial institutions. The total estimated cost of the network assets
to be covered by this lease agreement is $750 million. The lease term includes
an interim term, during which the covered network assets will be constructed,
which is anticipated to end no later than December 31, 1999, and a base term.
The interim and base terms are expected to total five years and, if renewed,
could total seven years.
We have an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a
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maximum of 89.9% of the transaction. The residual value guarantee is reduced by
the present value of the actual lease payments. In the event that we do not
exercise the purchase option, we expect the fair market value of the covered
network assets to substantially reduce or eliminate Williams' payment under the
residual value guarantee. At June 15, 1999, approximately $430 million of
construction costs for the Williams network had been funded, and we anticipate
that at the closing of the offerings approximately $500 million will have been
funded.
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SHARES ELIGIBLE FOR FUTURE SALE
After the equity offering and the concurrent investments, we will have
approximately 450,000,000 shares of common stock outstanding, ________ of which
will be owned by SBC, Intel and Telefonos de Mexico in the aggregate and up to
______ of which will be owned by our directors and executive officers. If the
underwriters exercise their over-allotment option in full, we will have a total
of approximately ________ shares of common stock outstanding. There will also be
outstanding options to purchase up to ________ shares of our common stock that
will be issued to directors and selected officers and other employees of our
company and Williams. In addition, we will have ________ shares of Class B
common stock outstanding, all of which will be owned by Williams. The Class B
common stock is convertible into common stock on a share-for-share basis at the
option of the holder at any time, or automatically upon transfer to a person or
entity which is not a permitted transferee. See the section of our prospectus of
"Description for Capital Stock" for more information. All of the common stock
sold in the equity offering will be freely transferable without restriction or
further registration under the Securities Act, except for shares acquired by our
directors and executive officers. The shares of Class B common stock to be
retained by Williams and the shares of common stock to be acquired the
concurrent investments are not being acquired under the equity offering and will
have restrictions on resale.
We, Williams, SBC, Intel, Telefonos de Mexico, our directors and executive
officers and selected customers and suppliers who are purchasing common stock in
the equity offering have agreed, subject to certain exceptions, not to offer,
sell, or otherwise dispose of any capital stock for a period of 180 days after
the date of this prospectus, without the prior written consent of Salomon Smith
Barney Inc. and Lehman Brothers Inc. on behalf of the underwriters. Williams is
not under any contractual obligation to retain our common stock or Class B
common stock, except during this 180-day period. SBC, Intel and Telefonos de
Mexico have agreed to additional restrictions on transfer of the shares of our
common stock acquired by them. We can give no assurance concerning how long
these parties will continue to hold their common stock after the equity
offering.
The shares of common stock acquired by SBC, Intel and Telefonos de Mexico
will be restricted securities, and, as such, will be subject to the resale
limitations of Rule 144 of the Securities Act.
The shares of Class B common stock held by Williams and the shares of
common stock acquired by any of our other affiliates will also be subject to the
resale limitations of Rule 144 of the Securities Act. Rule 144 defines an
affiliate as a person that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the issuer.
In general, a stockholder subject to Rule 144 who has owned common stock of
an issuer for at least one year may, within any three-month period, sell up to
the greater of:
- 1% of the total number of shares of common stock then outstanding; and
- the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale.
Rule 144 requires stockholders to aggregate their sales with other
stockholders with which it is affiliated for purposes of complying with this
volume limitation. A stockholder who has owned common stock for at least two
years, and who has not been an affiliate of the issuer for at least 90 days, may
sell common stock free from the volume limitation and notice requirements of
Rule 144.
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Following expiration of the 180-day period noted above, Williams will be
entitled to require us to use our best efforts to register for sale under the
Securities Act any shares of common stock held by it or any of its affiliates or
that may be received by it upon conversion of its Class B common stock. SBC,
Intel and Telefonos de Mexico also have registration rights. See the sections of
this prospectus entitled "Relationship Between Our Company and Williams" and
"Business -- Strategic alliances."
We cannot estimate the number of shares of common stock that may be sold by
third parties in the future because these sales will depend on market prices and
other factors.
Prior to the equity offering, there has been no public market for our
common stock. We cannot predict the effect, if any, that future sales of shares
of our common stock or the availability of our shares for sale would have on the
prevailing market price of our common stock. Sales of a significant number of
shares of our common stock, or the perception that these sales could occur,
could adversely affect the prevailing market price of our common stock and could
impair our future ability to raise capital through an offering of equity
securities. See "Risk Factors -- Risks relating to our common stock -- Shares
eligible for public sale after this offering may adversely affect our stock
price."
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IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS
This is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of our common stock
by a holder that, for U.S. federal income tax purposes, is not a U.S. person as
we define that term below. A holder of our common stock who is not a U.S. person
is a non-U.S. holder. We assume in this discussion that you will hold our common
stock issued pursuant to the offering as a capital asset (generally, property
held for investment). We do not discuss all aspects of U.S. federal taxation
that may be important to you in light of your individual investment
circumstances, such as special tax rules that would apply to you, for example,
if you are a dealer in securities, financial institution, bank, insurance
company, tax-exempt organization, partnership or owner of more than 5% of our
common stock. Our discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, judicial opinions,
published positions of the U.S. Internal Revenue Service and other applicable
authorities, all as in effect on the date of this prospectus and all of which
are subject to differing interpretations or change, possibly with retroactive
effect. We have not sought, and will not seek, any ruling from the IRS with
respect to the tax consequences discussed in this prospectus, and there can be
no assurance that the IRS will not take a position contrary to the tax
consequences discussed below or that any position taken by the IRS would not be
sustained. We urge you to consult your tax advisor about the U.S. federal tax
consequences of acquiring, holding, and disposing of our common stock, as well
as any tax consequences that may arise under the laws of any foreign, state,
local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S.
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business in the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2000, to an address in a foreign country are paid to a
resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether,
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for purposes of applying a treaty, dividends that we pay to a non-U.S. holder
that is an entity should be treated as paid to holders of interests in that
entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock and
- our common stock is and continues to be traded on an established
securities market for U.S. federal income tax purposes
We believe that our common stock will be traded on an established securities
market for this purpose in any quarter during which it is listed on the NYSE.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock as well as to a withholding tax, generally
at a rate of 10% of the proceeds. Any amount withheld pursuant to a withholding
tax will be creditable against a non-U.S. holder's U.S. federal income tax
liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends.
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This information may also be made available to the tax authorities of a country
in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office of a broker are subject to both backup withholding
at a rate of 31% and information reporting, unless the holder certifies as to
its non-U.S. holder status under penalties of perjury or otherwise establishes
an exemption. Information reporting requirements, but not backup withholding
tax, will also apply to payments of the proceeds of a sale or other taxable
disposition of our common stock by foreign offices of U.S. brokers or foreign
brokers with certain types of relationships to the U.S., unless the broker has
documentary evidence in its records that the holder is a non-U.S. holder and
certain other conditions are met or the holder otherwise established an
exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, the underwriters of the equity offering in the United
States and Canada named below, for whom Salomon Smith Barney Inc., Lehman
Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as U.S. representatives, and the underwriters of the concurrent equity offering
outside the United States and Canada named below, for whom Lehman Brothers
International (Europe), Salomon Brothers International Limited and Merrill Lynch
International are acting as international representatives, severally agreed to
purchase, and we have agreed to sell to the underwriters, the number of shares
set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. underwriters:
Salomon Smith Barney Inc. ................................
Lehman Brothers Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................
Banc of America Securities LLC............................
CIBC World Markets Corp...................................
Credit Suisse First Boston Corporation....................
Donaldson, Lufkin & Jenrette Securities Corporation.......
--------
Subtotal...............................................
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
International underwriters:
Lehman Brothers International (Europe)....................
Salomon Brothers International Limited....................
Merrill Lynch International...............................
Cazenove & Co.............................................
Bank of America International Limited.....................
CIBC World Markets International Limited..................
Credit Suisse First Boston (Europe) Limited...............
Donaldson, Lufkin & Jenrette International................
--------
Subtotal...............................................
--------
Total.......................................
========
</TABLE>
We refer to the U.S. underwriters and the international underwriters as the
underwriters and the U.S. representatives and international representatives as
the representatives. The underwriting agreement provides that the obligations of
the several underwriters to purchase the shares included in this offering are
subject to approval of legal matters by counsel as well as to other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares. The offering price and underwriting discounts and commissions per
share for the U.S. offering and the international offering are identical. The
closing of the U.S. offering is a condition to the closing of the international
offering and the closing of the international offering is a condition to the
closing of the U.S. offering.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain
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dealers at the public offering price less a concession not in excess of $____
per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $____ per share on sales to certain other dealers.
If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to ________ additional shares of our
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to its initial purchase commitment.
We, Williams, SBC, Intel and Telefonos de Mexico and our executive officers
and directors have agreed not to do any of the following, whether any
transaction described in clause (1), (2) or (3) below is to be settled by
delivery of common stock or other securities, in cash or otherwise, in each case
without the prior written consent of Salomon Smith Barney Inc. and Lehman
Brothers Inc., on behalf of the underwriters, for a period of 180 days after the
date of this prospectus:
(1) offer, sell, pledge, or otherwise dispose of, or enter into any transaction
or device which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of common
stock or securities convertible into or exchangeable for common stock, other
than any of the following:
- the common stock sold under this prospectus
- our issuance and sale of shares of common stock to SBC, Intel and
Telefonos de Mexico in connection with the concurrent investments
- our issuance of shares of Class B common stock to Williams in connection
with our exercise of the Algar option
- shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or pursuant to currently
outstanding options, warrants or rights
- shares of common stock we use as consideration for acquisitions or that
we issue in connection with strategic alliances, provided that the
recipient of these shares of our common stock agrees to be bound by the
transfer restrictions set forth in this prospectus for the remaining term
(2) sell or grant options, rights or warrants for shares of our common stock or
securities convertible into or exchangeable for our common stock except for
common stock and options for common stock which we issue or grant to our
officers, directors or employees
(3) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of shares of common stock
The U.S. underwriters and the international underwriters have entered into
an agreement among U.S. underwriters and international underwriters, pursuant to
which each U.S.
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underwriter has agreed that, as part of the distribution of the shares of common
stock offered in the U.S. offering:
- it is not purchasing any of these shares for the account of anyone other
than a U.S. person, which is generally U.S. or Canadian residents,
nationals or entities, and
- it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the U.S. offering to anyone other than a U.S. person
In addition, pursuant to the agreement, each international underwriter has
agreed that, as part of the distribution of the shares of common stock offered
in the international offering:
- it is not purchasing any of the shares for the account of a U.S. person,
and
- it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
relating to the international offering to any U.S. person
The limitations described above do not apply to stabilization transactions
or to other transactions specified in the underwriting agreement and the
agreement among U.S. underwriters and international underwriters, including:
- some purchases and sales between U.S. underwriters and the international
underwriters
- some offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investments discretion
- purchases, offers or sales by a U.S. underwriter who is also acting as an
international underwriter or by an international underwriter who is also
acting as a U.S. underwriter
- other transactions specifically approved by the U.S. representatives and
the international representatives
Any offer of the shares of common stock in Canada will be made only
pursuant to an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement (where such an exemption is not
available, offers shall be made only by a registered dealer) in the relevant
Canadian jurisdiction where any such offer is made.
Each international underwriter has represented and agreed to all of the
following:
- It has not offered or sold and, prior to the date six months after the
date of issue of the shares of common stock, will not offer or sell any
shares of common stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995.
- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the regulation with respect to anything
done by it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom.
- It has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection
with the issue of the shares of common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise be issued or passed upon.
Under the agreement between the U.S. underwriters and the international
underwriters, each international underwriter has further represented that it has
not offered or sold, and has agreed
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not to offer or sell, directly or indirectly, in Japan or to or for the account
of any resident of Japan, any of the shares of common stock in connection with
the distribution contemplated by this prospectus, except for offers and sales to
Japanese international underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
international underwriter has further agreed to send to any dealer who purchases
from it any of the shares of common stock a notice stating in substance that, by
purchasing these shares, the dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of these shares, directly or
indirectly, in Japan or to or for the account of any resident of Japan except
for offers or sales to Japanese international underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law, and that the dealer will send to any other dealer to whom it sells
any of these shares a notice containing substantially the same statements as set
forth in this sentence.
Pursuant to the agreement among the U.S. underwriters and international
underwriters, sales may be made between the U.S. underwriters and the
international underwriters of the number of shares of common stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of common stock being sold by the U.S.
underwriters and the international underwriters less an amount equal to the
selling concession allocable to those shares of common stock, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. underwriters and the international underwriters pursuant to the agreement
among the U.S. underwriters and the international underwriters, the number of
shares of common stock available for sale by the U.S. underwriters or by the
international underwriters may be more or less than the amount specified on the
cover page of this prospectus.
In connection with the equity offering, Salomon Smith Barney Inc. and
Lehman Brothers Inc., on behalf of the underwriters, may purchase and sell
shares of our common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of common stock in excess of the number
of shares to be purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of
our common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of our common stock made for the purpose of preventing
or retarding a decline in the market price of our common stock while this
offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. and Lehman Brothers Inc., in covering syndicate short
positions or making stabilizing purchases, repurchase shares originally sold by
that syndicate member.
Any of these activities may cause the price of our common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the NYSE, in
the over-the-counter market or otherwise and, if commenced, may be discontinued
at any time.
At our request, the underwriters have reserved up to ________ shares of
common stock offered in this prospectus for sale to all of the regular domestic
employees and independent directors of our company and of Williams and selected
suppliers and customers of our company at the initial public offering price set
forth on the cover page of this prospectus. Up to 7.0% of
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the common stock constituting the equity offering will be available for purchase
under the program, with no more than 0.7% of the common stock constituting the
equity offering to be available for purchase by the independent directors of our
company and Williams or our customers and suppliers. These persons must commit
to purchase no later than the close of business on the day following the date of
this prospectus. The number of shares available for sale to the general public
will be reduced to the extent these persons purchase reserved shares. Our
suppliers and customers who purchase shares of common stock will agree not to
sell these shares for a period of 180 days after the date of this prospectus
without the prior written consent of Salomon Smith Barney Inc. and Lehman
Brothers Inc., on behalf of the underwriters.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges in accordances with the laws and
practices of the country of purchase, in addition to the offering price set
forth on the cover of this prospectus.
We expect that more than 10% of the net proceeds of the offerings will be
paid to affiliates of certain of the underwriters. Accordingly, the offering is
being conducted in accordance with Rule 2720 of the National Association of
Securities Dealers, Inc., which requires that the initial public offering price
be no higher than that recommended by a qualified independent underwriter as
defined by the NASD. Salomon Smith Barney Inc. has agreed to serve in that
capacity in connection with the equity offering and performed due diligence
investigations and reviewed and participated in the preparation of the
registration statement of which this prospectus is a part. Salomon Smith Barney
Inc. will receive no compensation for acting in this capacity; however, we have
agreed to indemnify Salomon Smith Barney Inc. for acting as qualified
independent underwriter against certain liabilities under the Securities Act of
1933.
Certain of the underwriters of the equity offering and their affiliates
engage in transactions with, and perform services for, our company in the
ordinary course of business and have engaged and may in the future engage in
commercial banking and investment banking transactions with us and with
Williams, for which they receive customary compensation. In addition, some of
the underwriters of the equity offering will act as underwriters for the notes
offering.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
The validity of the common stock offered in this prospectus and certain
legal matters in connection with the offerings will be passed upon for us by our
Senior Vice President, Law, William von Glahn, and our special counsel, Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate,
Meagher & Flom LLP has from time to time represented, and may continue to
represent, Williams and its affiliates in certain legal matters, and is one of
several firms that have provided advice on taxation matters in connection with
the formation of WCG. Certain legal matters in connection with the offerings
will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New
York. Davis Polk & Wardwell has from time to time represented, and may continue
to represent, Williams and its affiliates in certain legal matters. As of the
date of this prospectus, Mr. von Glahn owns, directly or indirectly, 177,527
shares of common stock of Williams and has the right to exercise options to
receive an additional 93,838 shares. At the time of completion of the offerings,
our company will grant to Mr. von Glahn options to purchase 50,000 shares of our
common stock at an exercise price equal to the initial public offering price.
156
<PAGE> 161
EXPERTS
The consolidated financial statements and schedule of Williams
Communications Group, Inc. at December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein
which, as to the year 1998, are based in part on the report of Arthur Andersen
S/C, independent public accountants. The financial statements and schedule
referred to above are included in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The combined financial statements of the Direct Sales Subsidiary, NCS
(including BA Meridian) and TTS of the Enterprise Network's division of Nortel
Networks Corporation, formerly Northern Telecom Limited, for the year ended
December 31, 1996 and the four-month period ended April 30, 1997 appearing in
this prospectus and registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus constitutes a part of a registration statement on Form S-1
(together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement) which we have
filed with the Commission under the Securities Act, with respect to the common
stock offered in this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer you to the registration statement for further
information about our company and the securities offered in this prospectus.
Statements contained in this prospectus concerning the provisions of documents
are not necessarily summaries of the material provisions of those documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. You can inspect and copy the
registration statement and the reports and other information we file with the
Commission under the Exchange Act at the public reference room maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You can obtain information on the operation of the public reference
room by calling the Commission at 1-800-SEC-0330. The same information will be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, N.Y. 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can also obtain copies of this material from the public reference room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site which provides online access to
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
http://www.sec.gov.
Upon the effectiveness of the registration statement, we will become
subject to the information requirements of the Exchange Act. We will then file
reports, proxy statements and other information under the Exchange Act with the
Commission. In addition, Williams is subject to the information requirements of
the Exchange Act and files reports and other information under the Exchange Act
with the Commission. You can inspect and copy these reports and other
information of our company and Williams at the locations set forth above or
download these reports from the Commission's web site.
157
<PAGE> 162
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WILLIAMS COMMUNICATIONS GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-2
Report of Arthur Andersen S/C, Independent Public
Accountants............................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and the three months
ended March 31, 1999 and 1998 (unaudited).............. F-4
Consolidated Balance Sheets as of December 31, 1998 and
1997 and March 31, 1999 (unaudited).................... F-5
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1998, 1997 and 1996 and the
three months ended March 31, 1999 and 1998
(unaudited)............................................ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and the three months
ended March 31, 1999 and 1998 (unaudited).............. F-7
Notes to Consolidated Financial Statements (Information as
of March 31, 1999 and for the three months ended March
31, 1999 and 1998 is unaudited)........................ F-8
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
Report of Deloitte & Touche LLP, Independent Auditors..... F-41
Combined Statements of Income and Changes in Net Assets
for the four months ended April 30, 1997 and year ended
December 31, 1996...................................... F-42
Combined Statements of Cash Flows for the four months
ended April 30, 1997 and year ended December 31,
1996................................................... F-43
Notes to the Financial Statements......................... F-44
</TABLE>
F-1
<PAGE> 163
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Williams Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Williams
Communications Group, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of ATL -- Algar Telecom Leste S.A. (an
entity in which the Company has a 30% interest at December 31, 1998) have been
audited by other auditors whose report has been furnished to us; insofar as our
opinion on the consolidated financial statements relates to data included for
ATL -- Algar Telecom Leste S.A., it is based solely on their report. In the
consolidated statement of operations for the year ended December 31, 1998, the
Company's equity in the net loss of ATL -- Algar Telecom Leste S.A. is
$4,228,000.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Williams
Communications Group, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
April 7, 1999,
except for the matters described in the
third paragraph of Note 10 and Note 17,
as to which the date is July 7, 1999
F-2
<PAGE> 164
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management and Shareholders of
ATL -- Algar Telecom Leste S.A.:
We have audited the balance sheet of ATL -- ALGAR TELECOM LESTE S.A. (a
Brazilian corporation in the pre-operating stage) as of December 31, 1998, and
the related statements of income, changes in shareholders' investment and cash
flows for the period from inception (March 26, 1998) to December 31, 1998 (not
presented separately herein), all expressed in US dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ATL -- ALGAR TELECOM LESTE
S.A. (a pre-operating Company) as of December 31, 1998, and the results of its
operations and its cash flows for the period from inception (March 26, 1998) to
December 31, 1998, in conformity with generally accepted accounting principles
in the United States of America.
ARTHUR ANDERSEN S/C
Belo Horizonte, Brazil, January 29, 1999.
(except with respect to the matter
discussed in Note 8, as to which the
date is February 5, 1999)
F-3
<PAGE> 165
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues (Note 3).............. $ 502,161 $ 387,772 $ 1,733,469 $ 1,428,513 $ 705,187
Operating expenses:
Cost of sales................ 389,747 288,553 1,294,583 1,043,932 517,222
Selling, general and
administrative............ 122,919 103,673 487,073 323,513 152,484
Provision for doubtful
accounts.................. 8,437 1,483 21,591 7,837 2,694
Depreciation and
amortization.............. 27,578 18,995 84,381 70,663 32,378
Other (Note 4)............... 300 (342) 34,245 45,269 500
----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 548,981 412,362 1,921,873 1,491,214 705,278
----------- ----------- ----------- ----------- -----------
Loss from operations (Note
3)........................... (46,820) (24,590) (188,404) (62,701) (91)
Interest accrued............... (10,536) (1,739) (18,650) (8,714) (17,367)
Interest capitalized........... 4,135 1,739 11,182 7,781 --
Equity losses (Note 3)......... (10,159) (1,479) (7,908) (2,383) (1,601)
Investing income............... 1,025 369 1,931 670 296
Minority interest in (income)
loss of subsidiaries......... 5,836 (1,460) 15,645 (13,506) --
Gain on sale of interest in
subsidiary (Note 2).......... -- -- -- 44,540 --
Gain on sale of assets (Note
4)........................... -- -- -- -- 15,725
Other income (loss), net....... (174) (104) 178 508 (108)
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (56,693) (27,264) (186,026) (33,805) (3,146)
(Provision) benefit for income
taxes (Note 5)............... (17,448) 766 5,097 (2,038) (368)
----------- ----------- ----------- ----------- -----------
Net loss....................... $ (74,141) $ (26,498) $ (180,929) $ (35,843) $ (3,514)
=========== =========== =========== =========== ===========
Basic loss per share:
Net loss..................... $ (74,141) $ (26,498) $ (180,929) $ (35,843) $ (3,514)
Weighted average shares
outstanding............... 1,000 1,000 1,000 1,000 1,000
Pro-forma loss per share
(unaudited):
Net loss..................... $ (.16) $ (.06) $ (.40) $ (.08) $ (.01)
Weighted average shares
outstanding............... 450,000,000 450,000,000 450,000,000 450,000,000 450,000,000
</TABLE>
See accompanying notes.
F-4
<PAGE> 166
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, ---------------------------
1999 (UNAUDITED) 1998 1997
---------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 96,847 $ 42,004 $ 11,290
Receivables less allowance of $33,241,000 (unaudited)
($23,576,000 in 1998 and $12,787,000 in 1997)..... 512,985 491,871 291,100
Due from affiliates (Note 14)........................ -- 3,881 --
Costs and estimated earnings in excess of billings... 176,728 185,922 144,575
Inventories.......................................... 73,609 67,699 63,484
Dark fiber held for sale............................. 41,079 46,175 --
Deferred income taxes (Note 5)....................... 40,132 23,829 20,090
Other................................................ 18,119 26,198 29,640
---------- ---------- ----------
Total current assets................................... 959,499 887,579 560,179
Investments (Note 7)................................... 639,066 265,217 28,170
Property, plant and equipment -- net (Note 8).......... 781,324 695,725 407,652
Goodwill and other intangibles, net of accumulated
amortization of $90,668,000 (unaudited) ($81,882,000
in 1998 and $55,136,000 in 1997)..................... 419,871 430,557 403,319
Due from affiliate (Note 14)........................... -- -- 97,097
Other assets and deferred charges...................... 73,161 58,468 9,617
---------- ---------- ----------
Total assets........................................... $2,872,921 $2,337,546 $1,506,034
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable (Note 9)............................ $ 140,723 $ 269,736 $ 59,402
Due to affiliates (Note 14).......................... 64,150 38,510 123,584
Accrued liabilities (Note 9)......................... 207,507 198,676 176,979
Billings in excess of costs and estimated earnings... 45,050 49,434 48,054
Long-term debt due within one year (Note 10)......... 622 690 1,195
---------- ---------- ----------
Total current liabilities.............................. 458,052 557,046 409,214
Long-term debt:
Affiliates (Note 14)................................. 825,044 620,710 --
Other (Note 10)...................................... 318,390 3,020 125,746
Deferred income taxes (Note 5)......................... 108,176 29,417 20,090
Other liabilities...................................... 11,995 10,595 5,126
Minority interest in subsidiaries...................... 117,190 110,076 83,156
Stockholder's equity:
Common stock, $1 per share par value, 1,000 shares
issued and authorized............................. 1 1 1
Capital in excess of par value....................... 1,356,891 1,299,871 1,000,348
Accumulated deficit.................................. (392,091) (317,896) (134,168)
Accumulated other comprehensive income (loss) (Note
11)............................................... 69,273 24,706 (3,479)
---------- ---------- ----------
Total stockholder's equity............................. 1,034,074 1,006,682 862,702
---------- ---------- ----------
Total liabilities and stockholder's equity............. $2,872,921 $2,337,546 $1,506,034
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 167
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
IN OTHER
COMMON EXCESS OF ACCUMULATED COMPREHENSIVE
STOCK PAR VALUE DEFICIT INCOME(LOSS) TOTAL
------ ---------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................ $1 $ 179,712 $ (85,492) $ -- $ 94,221
Net loss................................ -- -- (3,514) -- (3,514)
Capital contributions from parent....... -- 439,000 -- -- 439,000
Dividends to parent..................... -- -- (2,760) -- (2,760)
Other................................... -- 306 -- -- 306
-- ---------- --------- -------- ----------
Balance, December 31, 1996................ 1 619,018 (91,766) -- 527,253
Net loss................................ -- -- (35,843) -- (35,843)
Other comprehensive loss (Note 11):
Unrealized depreciation on marketable
equity securities................. -- -- -- (2,348) (2,348)
Foreign currency translation
adjustments....................... -- -- -- (1,131) (1,131)
----------
Comprehensive loss...................... (39,322)
Capital contributions from parent....... -- 366,130 -- -- 366,130
Acquisition of subsidiary with parent
stock................................ -- 15,200 -- -- 15,200
Dividends to parent..................... -- -- (6,559) -- (6,559)
-- ---------- --------- -------- ----------
Balance, December 31, 1997................ 1 1,000,348 (134,168) (3,479) 862,702
Net loss................................ -- -- (180,929) -- (180,929)
Other comprehensive income (loss) (Note
11):
Unrealized appreciation on marketable
equity securities................. -- -- -- 29,977 29,977
Foreign currency translation
adjustments....................... -- -- -- (1,792) (1,792)
----------
Comprehensive loss...................... (152,744)
Capital contributions from parent....... -- 299,493 -- -- 299,493
Noncash dividends to parent............. -- -- (2,799) -- (2,799)
Other................................... -- 30 -- -- 30
-- ---------- --------- -------- ----------
Balance, December 31, 1998................ 1 1,299,871 (317,896) 24,706 1,006,682
Net loss*............................... -- -- (74,141) -- (74,141)
Other comprehensive income (loss) (Note
11):
Unrealized appreciation on marketable
equity securities*................ -- -- -- 67,761 67,761
Foreign currency translation
adjustments*...................... -- -- -- (23,194) (23,194)
----------
Comprehensive loss*..................... (29,574)
Capital contributions from parent*...... -- 57,020 -- -- 57,020
Other*.................................. -- -- (54) -- (54)
-- ---------- --------- -------- ----------
Balance, March 31, 1999*.................. $1 $1,356,891 $(392,091) $ 69,273 $1,034,074
== ========== ========= ======== ==========
</TABLE>
- ---------------
* Amounts for the three months ended March 31, 1999 are unaudited.
See accompanying notes.
F-6
<PAGE> 168
WILLIAMS COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................... $ (74,141) $ (26,498) $(180,929) $ (35,843) $ (3,514)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accounting principle.................. 301 -- -- -- --
Depreciation.................................... 19,146 12,251 56,224 47,066 22,453
Amortization of goodwill and other
intangibles.................................. 8,432 6,744 28,157 23,597 9,925
Provision (benefit) for deferred income taxes... 16,486 (1,151) (7,781) (1,777) (1,600)
Provision for loss on property.................. -- -- -- 44,043 --
Provision for loss on investment................ -- -- 23,150 2,500 --
Provision for doubtful accounts................. 8,437 1,483 21,591 7,837 2,694
Equity losses................................... 10,159 1,479 7,908 2,383 1,601
Gain on disposition of interest in subsidiary... -- -- -- (44,540) --
Gain on sale of assets.......................... -- -- -- -- (15,725)
Minority interest in income (loss) of
subsidiaries................................. (5,836) 1,460 (15,645) 13,506 --
Cash provided (used) by changes in:
Receivables sold............................. (33,767) -- 8,103 25,664 --
Receivables.................................. 3,589 (18,316) (213,148) (34,127) (15,420)
Costs and estimated earnings in excess of
billings................................... 9,194 1,048 (41,298) (66,454) (8,753)
Inventories.................................. (5,910) 2,783 (2,347) (6,613) (1,896)
Dark fiber held for sale..................... 5,096 -- (46,175) -- --
Other current assets......................... 7,897 (8,328) (10,640) (1,790) (17,484)
Accounts payable............................. (79,844) 44,762 108,770 (24,349) 13,851
Accrued liabilities.......................... 5,831 (1,763) 18,226 42,480 11,715
Billings in excess of costs and estimated
earnings................................... (4,384) (14,675) 1,380 38,239 5,214
Due to/from affiliates....................... 29,521 (103,245) (89,870) 127,378 7,320
Other........................................ (10,432) (7,911) (29,509) (11,342) (12,156)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities...................................... (90,225) (109,877) (363,833) 147,858 (1,775)
FINANCING ACTIVITIES
Proceeds from long-term debt...................... 315,477 -- -- 150,890 126
Payments on long-term debt........................ (175) (125,653) (126,677) (187,534) (1,353)
Capital contributions from parent................. 57,020 224,717 299,493 366,130 439,000
Contribution to subsidiary from minority interest
shareholders.................................... 11,000 -- -- -- --
Changes due to/from affiliates.................... 204,334 123,627 717,807 (96,974) (209,004)
Dividends to parent............................... -- -- -- (6,559) (2,760)
--------- --------- --------- --------- ---------
Net cash provided by financing activities......... 587,656 222,691 890,623 225,953 226,009
INVESTING ACTIVITIES
Property, plant and equipment:
Capital expenditures............................ (151,238) (110,117) (299,481) (276,249) (66,900)
Proceeds from sales............................. -- 506 1,512 15,292 23,010
Purchase of investments........................... (291,350) (11,800) (226,489) (25,345) (15,415)
Acquisition of businesses, net of cash acquired... -- -- 9,067 (81,192) (164,881)
Proceeds from sale of business.................... -- -- 10,000 -- --
Other............................................. -- 8,920 9,315 4,000 --
--------- --------- --------- --------- ---------
Net cash used in investing activities............. (442,588) (112,491) (496,076) (363,494) (224,186)
--------- --------- --------- --------- ---------
Increase in cash and cash equivalents............. 54,843 323 30,714 10,317 48
Cash and cash equivalents at beginning of year.... 42,004 11,290 11,290 973 925
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year.......... $ 96,847 $ 11,613 $ 42,004 $ 11,290 $ 973
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE> 169
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (INFORMATION AS OF MARCH 31, 1999 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 IS UNAUDITED.)
1. NATURE OF THE BUSINESS -- HISTORY AND FORMATION OF THE COMPANY -- BASIS OF
PRESENTATION -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Williams Communications Group, Inc. ("WCG" as described below) owns,
operates and is extending a nationwide fiber optic network focused on providing
voice, data, Internet and video services to communications service providers.
WCG also sells, installs and maintains equipment and network services that
address the comprehensive voice and data needs of organizations of all sizes.
WCG's primary business units are Williams network ("Network") and Williams
Communications Solutions ("Solutions"). WCG also owns and operates businesses
that create demand for capacity on the Williams network, create demand for our
solutions unit services or develop expertise in advanced transmission
applications. In addition, WCG has a number of investments in domestic and
foreign businesses that drive bandwidth usage on the Williams network, increase
service capabilities, strengthen customer relationships or extend WCG's reach.
These businesses and investments are referred to as "Strategic Investments."
HISTORY AND FORMATION OF THE COMPANY
WCG is owned by The Williams Companies, Inc. ("Williams"). In 1985,
Williams entered the communications business by pioneering the placement of
fiber optic cables in decommissioned pipelines. By 1989, through a combination
of construction projects and acquisitions, Williams had completed the fourth
nationwide digital fiber optic network. The network consisted of approximately
9,700 route miles. By 1994, Williams, through its WilTel subsidiary, was one of
the top providers of broadband data services and long distance voice services as
well as the first provider to offer nationwide frame relay transmission
capacity.
In January 1995, Williams completed the sale of the WilTel network business
to LDDS Communications, Inc. (now MCI WorldCom, Inc.) for approximately $2.5
billion. The sale included the nationwide fiber optic network and the associated
consumer, business and carrier customers. Williams excluded from the sale an
approximate 9,700 route mile single fiber strand on the nationwide network (the
"Retained WilTel Network"), WilTel's communications equipment distribution
business, and Vyvx, Inc. ("Vyvx"), a leading provider of integrated fiber optic,
satellite and teleport video transmission services. The Retained WilTel Network,
along with Vyvx, our solutions unit and a number of acquired companies formed
the initial basis for what is today WCG. See Note 2 for a description of
acquisitions in 1996 through 1998.
Under agreements with MCI WorldCom, Inc., the Retained WilTel Network can
only be used to transmit video and multimedia services, including Internet
services, until July 1, 2001. After July 1, 2001, the Retained WilTel Network
can be used for any purpose, including voice and data tariffed services. In
addition, as part of the sale to MCI WorldCom, Inc., Williams agreed not to
reenter the communications network business until January 1998.
In October 1997, management and ownership of the Retained WilTel Network
was transferred from Strategic Investments to Network and intercompany transfer
pricing was established prospectively. In addition, consulting, outsourcing and
the management of Williams' internal telephone operations, activities previously
performed within Strategic Investments, were transferred to Network. For
comparative purposes, the 1996 and 1997 consulting, outsourcing
F-8
<PAGE> 170
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and internal telephone management activities previously performed in Strategic
Investments that were transferred to Network have been reflected in Network's
segment results. See Note 3 for segment disclosures.
In January 1998, Williams reentered the communications network business,
announcing its plans to develop a fiber optic network consisting of 32,000 route
miles.
In November 1998, Williams announced its intention to sell a minority
interest in WCG through an initial public offering. Prior to the initial public
offering, Williams contributed certain international communications investments
held in Williams International Company to WCG for inclusion in the initial
public offering (see Note 17).
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been retroactively
restated to reflect the historical consolidated financial position as of March
31, 1999 (unaudited) and December 31, 1998 and 1997 and the consolidated results
of operations and cash flows for the three months ended March 31, 1999 and 1998
(unaudited) and each of the three years in the period ended December 31, 1998 as
if the contribution of the international investments held in Williams
International Company to WCG described above had occurred and operated as a
stand alone business throughout the periods presented. The March 31, 1999 and
1998 financial statements have not been audited by independent auditors, but
include all normal recurring adjustments which, in the opinion of WCG's
management, are necessary to present fairly its financial position as of March
31, 1999 and results of operations and cash flows for the three months ended
March 31, 1999 and 1998. Williams Communications Group, Inc. and Williams
International Company are both wholly owned subsidiaries of Williams Holdings of
Delaware, Inc. ("Holdings"), which is a wholly owned subsidiary of Williams.
When the consolidated financial statements refer to WCG, references include both
Williams Communications Group, Inc. together with its subsidiaries and the
international assets contributed to the company from Williams. In addition, when
the consolidated financial statements refer to Williams, Holdings or parent, the
reference includes Williams, either alone or together with its consolidated
subsidiaries as the context requires, except for WCG.
The consolidated financial statements include the accounts of WCG and its
majority owned subsidiaries and a subsidiary that WCG controls but owns less
than 50% of the voting common stock. Companies in which WCG owns 20% to 50% of
the voting common stock, or otherwise has the ability to exercise significant
influence over the operating and financial policies of the company, are
accounted for under the equity method of accounting.
The specific international investments referred to above include the
interests in ATL-Algar Telecom Leste S.A. ("ATL") located in Brazil, accounted
for under the equity method (see Note 7), and a 36% interest at March 31, 1999
(22% at December 31, 1998) in PowerTel Limited ("PowerTel") located in
Australia, accounted for under the principles of consolidation inasmuch as WCG
has control over the operations despite its less than 50% ownership.
WCG is organized into three operating segments as follows: (1) Network,
which includes fiber optic construction, transmission and management services,
(2) Solutions, which includes distribution and integration of communications
equipment for voice and data networks, and (3) Strategic Investments, which
includes Vyvx services (video, advertising distribution and other multimedia
transmission services via terrestrial and satellite links for the broadcast
F-9
<PAGE> 171
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
industry), closed circuit video broadcasting services for businesses and audio
and video conferencing services, investments in domestic communications
companies and investments in foreign communications companies located in
Australia, Brazil and Chile.
WCG's operations do not currently provide positive cash flow. Accordingly,
Williams has historically funded WCG's capital expenditures and acquisitions
through a combination of advances and capital contributions. Williams will
continue to provide cash to WCG or assist in the attainment of bridge financing
up to the effective date of the public offering. Subsequent to that date, WCG
intends to finance future cash outlays through internally generated and external
funds without relying on cash advances or contributions from Williams.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Transmission and management services revenues are recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred revenue.
Sales of constructed but unlit fiber, or dark fiber, are recognized at the
time of acceptance of the fiber by the customer.
New systems sales and upgrades revenues are recognized under the percentage
of completion method. The equipment portion of new systems sales and upgrades
revenues, when separately stated in the sales contract, is recognized when the
equipment is received by, and title passes to, the customer. The services
portion of new systems sales and upgrades revenues, and equipment when not
separately stated in the sales contract, is recognized based on the relationship
of the accumulated service costs incurred to the estimated total service costs
upon completion. Estimated losses on all contracts in progress are accrued when
the loss becomes known. Costs incurred and estimated earnings on contracts in
excess of billings are recorded and reflected as current assets in the balance
sheet. The billings associated with these contracts occur incrementally over the
term of the contract or upon completion of the contract, as provided in the
applicable contract. Billings to customers in excess of costs incurred and
estimated earnings are recorded and reflected as current liabilities.
Customer service order revenues are recognized under the completed contract
method. Customer service orders represent moves, adds or changes to existing
customer systems.
Revenues on contracts for maintenance of installed systems are deferred and
amortized on a straight-line basis over the lives of the related contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
F-10
<PAGE> 172
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist primarily of purchased new and refurbished data, voice
and video equipment, and are stated at the lower of average cost or market.
DARK FIBER HELD FOR SALE
Dark fiber held for sale represents fibers constructed by WCG on the
network for sale to third parties. Dark fiber held for sale is in excess of
fiber to be retained, lit and utilized by WCG for the provisioning of services
to its customers. The carrying amount of dark fiber held for sale reflects an
allocation of the total costs of cable, cable installation and rights-of-way
based on fiber-miles of each network segment. Dark fiber held for sale included
in current assets represents amounts to be sold within one year. Amounts
expected to be sold beyond one year of $24,822,000 and $18,948,000 as of March
31, 1999 (unaudited) and December 31, 1998, respectively, are included in other
assets and deferred charges.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed
primarily on the straight-line method over estimated useful lives.
GOODWILL AND OTHER INTANGIBLES
Goodwill is amortized on a straight-line basis over the estimated period of
benefit ranging from ten to twenty-five years. Other intangibles are amortized
on a straight-line basis over the estimated period of benefit ranging from five
to twenty years.
IMPAIRMENT OF LONG-LIVED ASSETS
WCG evaluates its long-lived assets, including related intangibles, of
identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.
INCOME TAXES
WCG's operations are included in the Williams' consolidated federal income
tax return. A tax sharing agreement exists between WCG and Williams to allocate
and settle among themselves the consolidated federal income tax liability (see
Note 5). Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial basis and tax basis
of WCG's assets and liabilities. Valuation allowances are established to reduce
deferred tax assets to an amount that will more likely than not be realized.
F-11
<PAGE> 173
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share are based on the 1,000 shares outstanding for all
periods presented. Diluted earnings per share are not presented as there are no
dilutive securities related to the WCG stock for the periods presented. The
pro-forma earnings per share was based on an assumed average shares outstanding
of 450,000,000. Stock options and awards have not been considered in calculating
the pro-forma net loss per share as their effect would be anti-dilutive.
FOREIGN CURRENCY TRANSLATION
The functional currency of WCG is the U.S. dollar. The functional currency
of WCG's foreign operations is the applicable local currency for each foreign
subsidiary and equity method investee, including the Australian dollar,
Brazilian real and Canadian dollar. Assets and liabilities of foreign
subsidiaries and equity investees are translated at the spot rate in effect at
the applicable reporting date, and the combined statements of operations and
WCG's share of the results of operations of its equity affiliates are translated
at the average exchange rates in effect during the applicable period. The
resulting cumulative translation adjustment is recorded as a separate component
of other comprehensive income.
Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transactions gains and losses
which are reflected in the statement of operations.
RECENT ACCOUNTING STANDARDS
WCG adopted the American Institute of Certified Public Accountants'
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," on January 1, 1999. The SOP requires that all start-up costs be
expensed as incurred and the expense related to the initial application of this
SOP was immaterial.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1999
presentation. Effective January 1, 1999, the segments previously known as
Applications and Strategic Investments were combined as they are now
collectively managed and reported under the name of Strategic Investments.
2. ACQUISITIONS
NORTEL
On April 30, 1997, WCG purchased Northern Telecom Limited's ("Nortel")
North American customer-premise equipment distribution business which was then
combined with WCG's equipment distribution business to create Williams
Communications Solutions, LLC. ("Solutions LLC"). WCG owns 70% of Solutions LLC
and Nortel owns the remaining 30%. WCG paid approximately $68 million to Nortel.
WCG has accounted for its 70% interest in the operations as a purchase business
combination, and beginning May 1, 1997, has included the results of operations
of the acquired company in WCG's consolidated statement of operations.
Accordingly, the acquired assets and liabilities, including $168 million in
accounts receivable, $68 million in accounts payable and accrued liabilities and
$161 million in debt obligations, were recorded based on an allocation of the
purchase price, with the cost in excess of historical
F-12
<PAGE> 174
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying values, which approximated fair value, allocated to identifiable
intangible assets and goodwill.
WCG recorded the 30% ownership reduction in its operations contributed to
Solutions LLC as a sale to Nortel. WCG recognized a gain of $44.5 million based
on the excess of the fair value over the net book value (approximately $71
million) of its operations conveyed to Nortel's minority interest. Income taxes
were not provided on the gain, because the transaction did not affect the
difference between the financial and tax bases of identifiable assets and
liabilities.
OTHER
During the three years ended December 31, 1998, WCG acquired 11 companies
in addition to the business combination involving Nortel. Each acquisition was
accounted for as a purchase business combination. The acquired assets and
liabilities have been recorded based on an allocation of the purchase price,
including identifiable intangibles with any remaining cost in excess of fair
value allocated to goodwill. WCG has included the results of operations of the
acquired entities in WCG's consolidated results of operations generally from the
date of acquisition. A summary of the acquisitions by segment is as follows:
NETWORK
On March 7, 1997, WCG acquired Critical Technologies, Inc., a company which
designs and manages outsourced communications networks, by utilizing a
$15,200,000 contribution of Williams common stock.
SOLUTIONS
In January 1996, WCG acquired Comlink, Inc., a voice and network systems
integration company, for approximately $13 million in cash.
On August 30, 1996, WCG acquired SoftIRON Systems, Inc., a network systems
integration company, for approximately $9 million in cash.
On October 13, 1998, WCG acquired Computer Networking Group, Inc., a
Canadian company which provides customers with comprehensive multimedia network
consulting and remote network management services, for approximately $13 million
to be paid over four years. Approximately $11 million of the acquisition price
was recorded at the acquisition date as the remaining $2 million is contingent
upon certain performance measures. Approximately $3 million of the acquisition
price was paid at the acquisition date with the remaining $7,700,000 payable on
the October 13 anniversary date as follows: 1999 -- $1,323,000,
2000 -- $1,667,000, 2001 -- $2,296,000 and 2002 -- $2,404,000.
STRATEGIC INVESTMENTS
On May 1, 1996, WCG acquired Global Access Telecommunications Services,
Inc., a reseller of worldwide satellite video transmission services, for
approximately $22 million in cash.
On August 1, 1996, WCG acquired ITC Media Conferencing, a provider of audio
and video conferencing services, for approximately $48 million in cash.
F-13
<PAGE> 175
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 19, 1996, WCG acquired Cycle-Sat, Inc., a distributor of
television and radio commercials using satellite, fiber-optic and digital
technologies, for approximately $57 million in cash.
On December 31, 1996, WCG acquired Viacom MGS, an advertising distribution
services company, for approximately $15 million in cash.
On March 3, 1997, WCG acquired Satellite Management International, Inc., a
full service provider of closed-circuit video broadcasting services for
businesses, for approximately $6 million in cash.
On August 14, 1998, Williams International Company acquired 22% (based on
25% of the common shares and no preferred shares) of PowerTel, a publicly owned
telecommunications company in Australia, for approximately $25 million in cash
and subscribed to purchase additional common and preferred shares for
approximately $67 million to increase its combined ownership to approximately
45% by February 2000. WCG also received 44,680,851 options to purchase
additional common shares of PowerTel at 0.47 Australian dollars per share. The
options, which expire in 2003, are not publicly traded and do not have a readily
determinable fair value. On February 9, 1999, in accordance with the
subscription agreement, additional preferred and common shares were purchased at
a total cost of $31,845,000, increasing WCG's ownership to 35% of the common
shares. WCG consolidates its interest in PowerTel as WCG currently holds a
majority of PowerTel's board seats and exercises control over PowerTel's
operations. After WCG's initial investment, PowerTel had approximately $38
million in cash, which resulted in net cash acquired of approximately $13
million when consolidated by WCG.
On October 23, 1998, WCG acquired Intersys, a data systems integration, ATM
frame relay and professional development company based in Mexico, for
approximately $1 million in cash and conversion of the investment WCG had in
Intersys' parent.
Costs of acquisitions, net of cash acquired, for all acquisitions discussed
above are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital............................. $ (3,048) $ 121,830 $ 16,862
Property and equipment...................... 4,567 21,211 17,790
Goodwill and other intangibles.............. 52,506 215,821 142,287
Long-term debt.............................. (3,446) (160,873) (1,234)
Minority interest........................... (49,137) (69,650) --
Other....................................... (10,509) (31,947) (10,824)
-------- --------- --------
Cost of acquisitions, net of cash
acquired.................................. $ (9,067) $ 96,392 $164,881
======== ========= ========
</TABLE>
The following summarized unaudited pro forma financial information for the
years ended December 31 assumes each acquisition had occurred on January 1 of
the year immediately preceding the year of the acquisition:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................ $1,776,349 $1,756,253 $1,533,140
Net loss................................ $ (189,707) $ (37,615) $ (11,162)
</TABLE>
F-14
<PAGE> 176
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results include operating results prior to the acquisitions
and adjustments to interest expense, goodwill amortization and income taxes. The
pro forma consolidated results do not purport to be indicative of results that
would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
3. SEGMENT DISCLOSURES
WCG adopted Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.
WCG evaluates performance based upon segment profit or loss from operations
which includes revenues from external and internal customers, equity earnings or
losses, operating costs and expenses, and depreciation and amortization and
excludes allocated charges from parent. The accounting policies of the segments
are the same as those described in Note 1. Intercompany sales are generally
accounted for as if the sales were to unaffiliated third parties, that is, at
current market prices.
F-15
<PAGE> 177
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain financial information concerning WCG's
reportable segments.
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MARCH 31, 1999 (UNAUDITED)
Revenues:
External customers:
Sales of dark fiber................................. $ 51,321 $ -- $ -- $ -- $ 51,321
Capacity and other.................................. 42,129 -- 68,010 -- 110,139
New systems sales and upgrades...................... -- 193,610 -- -- 193,610
Maintenance and customer service orders............. -- 137,721 -- -- 137,721
Other............................................... -- 4,717 -- -- 4,717
-------- ---------- ----------- ---------- ----------
Total external customers............................... 93,450 336,048 68,010 -- 497,508
Affiliates............................................. 3,409 1,244 -- -- 4,653
Intercompany........................................... 11,633 -- 134 (11,767) --
-------- ---------- ----------- ---------- ----------
Total segment revenues................................... $108,492 $ 337,292 $ 68,144 $ (11,767) $ 502,161
======== ========== =========== ========== ==========
Costs of sales:
Sales of dark fiber.................................... $ 40,804 $ -- $ -- $ -- $ 40,804
Capacity and other..................................... 61,838 -- 42,808 -- 104,646
New systems sales and upgrades......................... -- 141,491 -- -- 141,491
Maintenance and customer service orders................ -- 73,566 -- -- 73,566
Indirect operating and maintenance..................... -- 29,240 -- 29,240
Intercompany........................................... -- 2,472 9,295 (11,767) --
-------- ---------- ----------- ---------- ----------
Total cost of sales...................................... $102,642 $ 246,769 $ 52,103 $ (11,767) $ 389,747
======== ========== =========== ========== ==========
Segment loss:
Loss from operations................................... $(17,956) $ (10,941) $ (17,923) $ -- $ (46,820)
Equity losses.......................................... -- -- (10,159) -- (10,159)
Add back -- allocated charges from parent.............. 764 2,109 477 -- 3,350
-------- ---------- ----------- ---------- ----------
Total segment loss....................................... $(17,192) $ (8,832) $ (27,605) $ -- $ (53,629)
======== ========== =========== ========== ==========
Total assets............................................. $814,858 $ 951,883 $ 1,106,180 $ -- $2,872,921
Depreciation and amortization............................ $ 5,800 $ 10,571 $ 11,207 $ -- $ 27,578
</TABLE>
F-16
<PAGE> 178
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MARCH 31, 1998 (UNAUDITED)
Revenues:
External customers:
Capacity and other................................... $ 7,218 $ -- $ 50,177 $ -- $ 57,395
New systems sales and upgrades....................... -- 179,587 -- -- 179,587
Maintenance and customer service orders.............. -- 145,254 -- -- 145,254
Other................................................ -- 1,835 -- -- 1,835
-------- ---------- ----------- ---------- ----------
Total external customers................................ 7,218 326,676 50,177 -- 384,071
Affiliates.............................................. 1,878 770 1,053 -- 3,701
Intercompany............................................ 12,070 -- 117 (12,187) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $ 21,166 $ 327,446 $ 51,347 $ (12,187) $ 387,772
======== ========== =========== ========== ==========
Costs of sales:
Capacity and other...................................... $ 16,414 $ -- $ 32,759 $ -- $ 49,173
New systems sales and upgrades.......................... -- 128,608 -- -- 128,608
Maintenance and customer service orders................. -- 80,054 -- -- 80,054
Indirect operating and maintenance...................... -- 30,718 -- -- 30,718
Intercompany............................................ 50 1,985 10,152 (12,187) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $ 16,464 $ 241,365 $ 42,911 $ (12,187) $ 288,553
======== ========== =========== ========== ==========
Segment loss:
Loss from operations.................................... $ (8,347) $ (214) $ (16,029) $ -- $ (24,590)
Equity losses........................................... -- -- (1,479) -- (1,479)
Add back -- allocated charges from parent............... 434 3,512 544 -- 4,490
-------- ---------- ----------- ---------- ----------
Total segment loss........................................ $ (7,913) $ 3,298 $ (16,964) $ -- $ (21,579)
======== ========== =========== ========== ==========
Depreciation and amortization............................. $ 2,235 $ 9,018 $ 7,742 $ -- $ 18,995
</TABLE>
F-17
<PAGE> 179
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Revenues:
External customers:
Sales of dark fiber.................................. $ 64,100 $ -- $ -- $ -- $ 64,100
Capacity and other................................... 73,367 -- 216,634 -- 290,001
New systems sales and upgrades....................... -- 791,518 -- -- 791,518
Maintenance and customer service orders.............. -- 556,392 -- -- 556,392
Other................................................ -- 16,029 -- -- 16,029
-------- ---------- ----------- ---------- ----------
Total external customers................................ 137,467 1,363,939 216,634 -- 1,718,040
Affiliates.............................................. 7,710 3,465 4,254 -- 15,429
Intercompany............................................ 49,759 -- 522 (50,281) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $194,936 $1,367,404 $ 221,410 $ (50,281) $1,733,469
======== ========== =========== ========== ==========
Costs of sales:
Sales of dark fiber..................................... $ 38,500 $ -- $ -- $ -- $ 38,500
Capacity and other...................................... 118,627 -- 137,255 -- 255,882
New systems sales and upgrades.......................... -- 554,726 -- -- 554,726
Maintenance and customer service orders................. -- 311,258 -- -- 311,258
Indirect operating and maintenance...................... -- 134,217 -- -- 134,217
Intercompany............................................ 252 9,274 40,755 (50,281) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $157,379 $1,009,475 $ 178,010 $ (50,281) $1,294,583
======== ========== =========== ========== ==========
Segment loss:
Loss from operations.................................... $(27,716) $ (58,966) $ (101,722) $ -- $ (188,404)
Equity losses........................................... -- -- (7,908) -- (7,908)
Add back -- allocated charges from parent............... 1,409 8,435 1,810 -- 11,654
-------- ---------- ----------- ---------- ----------
Total segment loss........................................ $(26,307) $ (50,531) $ (107,820) $ -- $ (184,658)
======== ========== =========== ========== ==========
Total assets.............................................. $727,119 $ 967,948 $ 642,479 $ -- $2,337,546
Equity method investments................................. $ -- $ -- $ 52,722 $ -- $ 52,722
Additions to long-lived assets............................ $246,626 $ 57,504 $ 97,824 $ -- $ 401,954
Depreciation and amortization............................. $ 13,230 $ 36,637 $ 34,514 $ -- $ 84,381
</TABLE>
F-18
<PAGE> 180
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
-------- ---------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Revenues:
External customers:
Capacity and other................................... $ 16,637 $ -- $ 213,098 $ -- $ 229,735
New systems sales and upgrades....................... -- 674,604 -- -- 674,604
Maintenance and customer service orders.............. -- 508,319 -- -- 508,319
Other................................................ -- 5,363 -- -- 5,363
-------- ---------- ----------- ---------- ----------
Total external customers................................ 16,637 1,188,286 213,098 -- 1,418,021
Affiliates.............................................. 5,217 1,512 3,763 -- 10,492
Intercompany............................................ 21,159 -- 1,105 (22,264) --
-------- ---------- ----------- ---------- ----------
Total segment revenues.................................... $ 43,013 $1,189,798 $ 217,966 $ (22,264) $1,428,513
======== ========== =========== ========== ==========
Cost of sales:
Capacity and other...................................... $ 28,657 $ -- $ 139,609 $ -- $ 168,266
New systems sales and upgrades.......................... -- 505,284 -- -- 505,284
Maintenance and customer service orders................. -- 267,775 -- -- 267,775
Indirect operating and maintenance...................... -- 102,607 -- -- 102,607
Intercompany............................................ 554 5,446 16,264 (22,264) --
-------- ---------- ----------- ---------- ----------
Total cost of sales....................................... $ 29,211 $ 881,112 $ 155,873 $ (22,264) $1,043,932
======== ========== =========== ========== ==========
Segment profit (loss):
Income (loss) from operations........................... $ 3,278 $ 37,052 $ (103,031) $ -- $ (62,701)
Equity earnings (losses)................................ -- -- (2,383) -- (2,383)
Add back -- allocated charges from parent............... -- 6,690 2,540 -- 9,230
-------- ---------- ----------- ---------- ----------
Total segment profit (loss)............................... $ 3,278 $ 43,742 $ (102,874) $ -- $ (55,854)
======== ========== =========== ========== ==========
Total assets.............................................. $246,317 $ 922,823 $ 336,894 $ -- $1,506,034
Equity method investments................................. $ 2,317 $ -- $ 3,815 $ -- $ 6,132
Additions to long-lived assets............................ $175,861 $ 236,000 $ 101,487 $ -- $ 513,348
Depreciation and amortization............................. $ 4,012 $ 30,142 $ 36,509 $ -- $ 70,663
</TABLE>
F-19
<PAGE> 181
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC
NETWORK SOLUTIONS INVESTMENTS ELIMINATIONS TOTAL
------- ------------ ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Revenues:
External customers:
Capacity and other.................................... $ -- $ -- $ 130,816 $ -- $ 130,816
New systems sales and upgrades........................ -- 306,110 -- -- 306,110
Maintenance and customer service orders............... -- 251,221 -- -- 251,221
Other................................................. -- 9,379 -- -- 9,379
------- ---------- ----------- ---------- ----------
Total external customers................................. -- 566,710 130,816 -- 697,526
Affiliates............................................... 4,918 1,362 1,381 -- 7,661
Intercompany............................................. 6,145 -- 280 (6,425) --
------- ---------- ----------- ---------- ----------
Total segment revenues..................................... $11,063 $ 568,072 $ 132,477 $ (6,425) $ 705,187
======= ========== =========== ========== ==========
Cost of sales:
Capacity and other....................................... $ 4,681 $ -- $ 81,535 $ -- $ 86,216
New systems sales and upgrades........................... -- 223,519 -- -- 223,519
Maintenance and customer service orders.................. -- 155,130 -- -- 155,130
Indirect operating and maintenance....................... -- 52,357 -- -- 52,357
Intercompany............................................. -- 4,484 1,941 (6,425) --
------- ---------- ----------- ---------- ----------
Total cost of sales........................................ $ 4,681 $ 435,490 $ 83,476 $ (6,425) $ 517,222
======= ========== =========== ========== ==========
Segment profit (loss):
Income (loss) from operations............................ $ 5,750 $ 8,887 $ (14,728) $ -- $ (91)
Equity losses............................................ -- -- (1,601) -- (1,601)
Add back -- allocated charges from parent................ -- 5,439 $ 1,204 -- 6,643
------- ---------- ----------- ---------- ----------
Total segment profit (loss)................................ $ 5,750 $ 14,326 $ (15,125) $ -- $ 4,951
======= ========== =========== ========== ==========
Total assets............................................... $ -- $ 344,606 $ 377,081 $ -- $ 721,687
Equity method investments.................................. $ -- $ -- $ 6,550 $ -- $ 6,550
Additions to long-lived assets............................. $ -- $ 34,906 $ 192,071 $ -- $ 226,977
Depreciation and amortization.............................. $ -- $ 16,023 $ 16,355 $ -- $ 32,378
</TABLE>
F-20
<PAGE> 182
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following geographic area data includes revenues from external
customers based on product shipment origin for the years ended December 31 and
long-lived assets based upon physical location as of December 31.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from external customers:
United States........................... $1,591,779 $1,336,743 $693,943
Other................................... 126,261 81,278 3,583
---------- ---------- --------
Total..................................... $1,718,040 $1,418,021 $697,526
========== ========== ========
Long-lived assets:
United States........................... $1,070,772 $ 805,830 $374,439
Other................................... 55,510 5,141 1,244
---------- ---------- --------
Total..................................... $1,126,282 $ 810,971 $375,683
========== ========== ========
</TABLE>
Long-lived assets are comprised of property, plant and equipment and
goodwill and other intangible assets.
4. ASSET SALES AND WRITE-OFFS
Included in 1998 other operating expenses and Strategic Investments'
segment loss is a $23,150,000 loss related to abandoning an investment in a
venture involved in the technology and transmission of business information for
news and educational purposes. The loss occurred as a result of WCG's
re-evaluation and decision to exit the venture as WCG decided against making
further investments in the venture. WCG abandoned its entire ownership interest
in the venture in 1998. The loss primarily consists of $17 million from writing
off the entire carrying amount of the investment and $5 million from recognition
of contractual obligations that will continue after the abandonment. During
1998, $2 million of the contractual obligations were paid. WCG's share of losses
from the venture accounted for under the equity method were $3,670,000,
$2,269,000 and none in 1998, 1997 and 1996, respectively.
Included in 1997 other operating expenses and Strategic Investments'
segment loss are impairments and other charges totaling $42,043,000. In the
fourth quarter of 1997, WCG made the decision and committed to a plan to sell
the learning content business, which resulted in a loss of $22.7 million in
1997. The loss consisted of a $21 million impairment of the assets to fair value
less cost to sell and recognition of $1.7 million in costs associated with the
decision to sell the business. Fair value was based on management's estimate of
the expected net proceeds to be received. During 1998, a significant portion of
the learning content business was sold with a resulting $2 million reduction in
1998 expenses. The carrying amount of the learning content business at December
31, 1998 and 1997 is not significant to WCG's consolidated balance sheet. The
results of operations and effect of suspending amortization for the learning
content business included in the consolidated net loss are not significant for
any of the periods presented. Costs of $1.7 million recorded in 1997 primarily
consist of contractual obligations and employee termination costs. Additional
employee termination costs of $1 million were incurred in 1998. In 1997, WCG
also impaired a continuing Strategic Investments project resulting in a loss of
$13 million. Fair value for this project was based upon management's estimate as
to the ultimate recovery of the project. Additionally, WCG made the decision and
committed to a plan
F-21
<PAGE> 183
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to sell the enhanced fax business, resulting in an impairment loss of $4 million
in 1997. Fair value was based on management's estimate of the expected proceeds
to be received. The fax business was sold in 1998 resulting in a $.5 million
reduction in 1998 expenses. In 1997, WCG also recorded $2 million of expenses
from cancellation payments for leases that are no longer being utilized in our
operations.
In 1996, WCG recognized a pre-tax gain of $15,725,000 from the sale of
certain communication rights (obtained from affiliates in 1995) for
approximately $38 million.
5. PROVISION (BENEFIT) FOR INCOME TAXES
WCG's operations are included in Williams' consolidated federal income tax
return. WCG has a tax sharing agreement with Williams under which the amount of
federal income taxes allocated to WCG is generally determined as though WCG were
filing a separate federal consolidated income tax return. Under the terms of the
tax sharing agreement, any loss or other similar tax attribute realized for
periods prior to the initial public offering will be allocated solely to
Williams. WCG will be responsible for any taxes resulting to Williams if the
loss or similar tax attribute is reduced by audit or otherwise. For any loss or
other similar tax attribute realized after the initial public offering, WCG will
receive the benefit of the loss or other similar tax attribute only if WCG is
able to carry forward the loss or other similar tax attribute against its
hypothetical separate return tax calculation for a period in which WCG remains a
member of Williams' consolidated federal income tax group. If WCG ceases to be a
member of Williams' consolidated federal income tax return, WCG will retain only
its allocable share under applicable law of any consolidated loss or other
similar tax attribute realized after the initial public offering to the extent
that it has not been treated as utilizing such loss or attribute on a
hypothetical separate tax return basis under the tax sharing agreement. Similar
concepts apply to allocate the state unitary, combined or consolidated, income
tax liability.
The provision (benefit) for income taxes for the three months ended March
31, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997 and
1996 includes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEARS ENDED DECEMBER 31,
---------------------- ---------------------------
1999 1998 1998 1997 1996
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal................. $ -- $ -- $ -- $ -- $ 1,810
State................... -- 23 162 2,081 158
Foreign................. 962 362 2,522 1,734 --
------- ------- ------- ------- -------
962 385 2,684 3,815 1,968
Deferred:
Federal................. 11,202 (846) (5,652) (2,761) (1,761)
State................... 5,284 (305) (2,129) 984 161
------- ------- ------- ------- -------
16,486 (1,151) (7,781) (1,777) (1,600)
------- ------- ------- ------- -------
Total provision
(benefit)............... $17,448 $ (766) $(5,097) $ 2,038 $ 368
======= ======= ======= ======= =======
</TABLE>
F-22
<PAGE> 184
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the U.S. and foreign components of loss before
income taxes for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................ $(183,074) $(33,930) $(2,184)
Foreign...................................... (2,952) 125 (962)
--------- -------- -------
Total loss before taxes...................... $(186,026) $(33,805) $(3,146)
========= ======== =======
</TABLE>
Reconciliations from the benefit for income taxes at the federal statutory
rate to the provision (benefit) for income taxes for the three months ended
March 31, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEARS ENDED DECEMBER 31,
--------------------- -----------------------------
1999 1998 1998 1997 1996
-------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Benefit at statutory
rate................. $(19,737) $(9,541) $(65,109) $(11,832) $(1,101)
Increases (reductions)
in taxes resulting
from:
State income taxes... 3,435 (184) (1,279) 1,992 207
Goodwill
amortization...... 812 762 5,286 2,675 1,469
Non-taxable gain from
the sale of
interest in
subsidiary........ -- -- -- (15,605) --
Change in valuation
allowance......... -- (1,256) (7,639) 10,827 --
Tax benefits
allocated to
Williams.......... 29,566 8,633 60,261 12,761 --
Other -- net......... 3,372 820 3,383 1,220 (207)
-------- ------- -------- -------- -------
Provision (benefit) for
income taxes......... $ 17,448 $ (766) $ (5,097) $ 2,038 $ 368
======== ======= ======== ======== =======
</TABLE>
F-23
<PAGE> 185
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenues..................................... $14,321 $ 15,424
Impairment and other charges.......................... 3,880 17,441
Other................................................. 12,789 3,392
------- --------
30,990 36,257
Valuation allowance..................................... (3,188) (10,827)
------- --------
Total deferred tax assets............................... 27,802 25,430
Deferred tax liabilities:
Property, plant and equipment......................... 14,783 21,759
Securities available for sale......................... 13,763 (1,565)
Other................................................. 4,844 5,236
------- --------
Total deferred tax liabilities.......................... 33,390 25,430
------- --------
Net deferred tax liability.............................. $ 5,588 $ --
======= ========
</TABLE>
Valuation allowances have been established that reduce deferred tax assets
to an amount that will more likely than not be realized. Uncertainties that may
affect the realization of these assets include application of the tax sharing
agreement with Williams, tax law changes and expiration of carryforward periods.
The valuation allowance decreased during 1998 and increased during 1997,
primarily due to application of the tax sharing agreement with Williams.
If WCG had filed a separate federal income tax return for all periods
presented, the provision (benefit) for income taxes for 1998 and 1997 would
reflect additional benefit from the carryback or carryforward of federal net
operating losses that would have been recognized by WCG on a separate return
basis. The deferred federal income tax benefit for 1998 would have increased by
$5,588,000, to reflect the benefit of a deferred tax asset for the federal net
operating loss carryforward generated in 1998, to the extent of the existing net
deferred tax liability. A current federal income tax benefit for 1997 of
$12,761,000 would have been recognized to reflect the refund of tax from
carryback of the federal net operating loss generated in 1997. The provision
(benefit) for income taxes for 1996 would not change since a federal net
operating loss was not generated in 1996.
Cash payments for income taxes (net of refunds) were $2,067,000, $1,148,000
and $2,444,000 in 1998, 1997 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
Substantially all of WCG's employees are covered by noncontributory defined
benefit pension plans. Effective August 1, 1997, separate plans were established
for the Solutions LLC union employees and Solutions LLC salaried employees.
Substantially all of the remaining WCG employees are covered by Williams'
noncontributory defined benefit pension plans in which WCG is included. WCG is
also included in Williams' health care plan that provides postretirement medical
benefits to certain retired employees.
F-24
<PAGE> 186
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contributions for pension and postretirement medical benefits related to
WCG's participation in the Williams plans were $1,742,000, $357,000 and
$12,463,000 in 1998, 1997 and 1996, respectively. The change in contributions
from year to year is due to a change in the rate of pension contributions during
the periods. Contributions in excess of the minimum funding requirements were
made in 1996 and the resulting credit balances from 1996 were used to reduce the
required pension contributions in 1997.
The following table presents the changes in benefit obligations and plan
assets for pension benefits for the Solutions LLC plans for the years indicated.
It also presents a reconciliation of the funded status of these benefits to the
amount recognized in the accompanying consolidated balance sheet as of December
31 of each year indicated.
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................ $41,987 $ --
Service cost........................................... 4,604 1,770
Interest cost.......................................... 2,972 1,130
Actuarial loss......................................... 2,566 497
Acquisition............................................ -- 38,663
Benefits paid.......................................... (234) (73)
------- -------
Benefit obligation at end of year........................ 51,895 41,987
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year......... 42,971 --
Actual return on plan assets........................... 5,247 (956)
Acquisition............................................ 73 44,000
Employer contributions................................. 502 --
Benefits paid.......................................... (234) (73)
------- -------
Fair value of plan assets at end of year................. 48,559 42,971
------- -------
Funded status............................................ (3,336) 984
Unrecognized net actuarial loss.......................... 4,550 2,855
Unrecognized prior service credit........................ (1,230) (1,510)
------- -------
Net prepaid (accrued) benefit cost....................... $ (16) $ 2,329
======= =======
Included in the accompanying consolidated balance sheet
as follows:
Prepaid benefit cost................................... $ 2,196 $ 3,791
Accrued benefit cost................................... (2,212) (1,462)
------- -------
Net prepaid (accrued) benefit cost....................... $ (16) $ 2,329
======= =======
</TABLE>
F-25
<PAGE> 187
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net pension expense for the Solutions LLC plans consisted
of the following for the years ended December 31:
Components of net periodic pension expense:
Service cost........................................... $ 4,604 $ 1,770
Interest cost.......................................... 2,972 1,130
Expected return on plan assets......................... (4,293) (1,551)
Amortization of prior service credit................... (280) (117)
Recognized net actuarial gain.......................... (83) (18)
------- -------
Net periodic pension expense............................. $ 2,920 $ 1,214
======= =======
The following are the weighted-average assumptions
utilized as of December 31 of the year indicated:
Discount rate.......................................... 7.0% 7.1%
Expected return on plan assets......................... 10.0 10.0
Rate of compensation increase.......................... 5.0 5.0
</TABLE>
Williams maintains various defined contribution plans in which WCG is
included. WCG's costs related to these plans were $16,415,000, $9,564,000 and
$5,934,000 in 1998, 1997 and 1996, respectively. These costs increased over the
period from 1996 to 1998 primarily due to acquisitions (see Note 2).
Included in selling, general and administrative expenses for 1998 is an
accrual of $11,500,000 related to the modification of WCG's employee benefit
program associated with vesting of paid time off. In December 1998, WCG
increased the number of days in the new paid time off policy and changed the
benefits with regard to sick pay.
F-26
<PAGE> 188
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INVESTMENTS
Investments as of March 31, 1999 (unaudited) and December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1999 (UNAUDITED) 1998 1997
---------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity method:
ATL -- common stock.................. $ 64,892 $ 48,256 $ --
Others............................... 463 454 6,132
-------- -------- -------
65,355 48,710 6,132
Cost method:
ATL -- preferred stock............... 317,621 100,573 --
Others............................... 53,501 28,001 3,332
-------- -------- -------
371,122 128,574 3,332
Advances to investees................... 4,997 4,997 7,619
Marketable equity
securities -- Concentric Network
Corporation.......................... 197,592 82,936 11,087
-------- -------- -------
$639,066 $265,217 $28,170
======== ======== =======
</TABLE>
No dividends were received from investments in companies carried on the
equity basis for 1998, 1997 or 1996.
Included in the investments table above are noncurrent marketable equity
securities which are classified as available for sale under the scope of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
carrying amount of this investment is reported at fair value with net unrealized
appreciation or depreciation reported as a component of stockholder's equity. A
comparison of the carrying amount of this investment to cost as of March 31,
1999 (unaudited) and December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, -------------------------------------------
1999 (UNAUDITED) 1998 1997
-------------------- -------------------- --------------------
FAIR VALUE FAIR VALUE FAIR VALUE
(CARRYING (CARRYING (CARRYING
COST AMOUNT) COST AMOUNT) COST AMOUNT)
------- ---------- ------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Concentric Network
Corporation........ $41,543 $197,592 $41,543 $82,936 $15,000 $11,087
</TABLE>
WCG acquired 710,036 warrants to purchase common stock of Concentric
Network Corporation in connection with WCG's acquisition of Concentric Network
Corporation common stock in 1997. No basis was allocated to the warrants as the
fair value of the warrants was considered to be nominal at the date the warrants
were acquired. Each warrant entitles the holder thereof to purchase one share of
Concentric Network Corporation common stock for $3. The warrants expire in 2002.
As of May 26, 1999, the Concentric Network Corporation investment has
depreciated since March 31, 1999, to a fair value of $168,870,000 based upon the
May 26, 1999 stock price of $32.
F-27
<PAGE> 189
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 13, 1999, the Brazilian Central Bank removed the limits of
variations of the Brazilian Real compared to the U.S. dollar, allowing free
market fluctuation of the exchange rate. As a result, the value of the Real in
U.S. dollars has declined 30% from December 31, 1998 to March 31, 1999.
Williams has granted WCG an option to acquire Williams' entire equity and
debt interest in Algar Telecom S/A, a Brazilian telecommunications company, at
net book value. The option is exercisable at any time from January 1, 2000 to
January 1, 2001 and is payable entirely in WCG's Class B common stock. The net
book value of Williams investment in Algar as of December 31, 1998 was
approximately $170 million including advances of $100 million. WCG has not
assigned any value to the option as of December 31, 1998.
At December 31, 1998, WCG owned 30% of the preferred shares in ATL and 30%
of the common stock through participation in a limited liability company. On
March 25, 1999, WCG invested $265 million in ATL to acquire a 19% ownership in
ATL's outstanding common stock and to increase WCG's ownership in ATL's
outstanding preferred stock to 73%.
On March 25, 1999, WCG pledged 49% and 100% of its investment in ATL's
common and preferred stock, respectively, as collateral for a U.S. dollar
denominated $521 million loan from Ericsson Project Finance AB to ATL. In
addition, Algar pledged 49% of its 51% investment in ATL common stock and 100%
of its 27% investment in ATL preferred stock as collateral for the loan. The
loan principal is due on March 25, 2002.
Summarized financial position as of December 31, 1998 and results of
operations for the period from inception (March 26, 1998) to December 31, 1998
for ATL are as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 55,641
Noncurrent assets........................................... 1,572,276
Current liabilities......................................... (522,385)
Long-term debt.............................................. (26,427)
Other noncurrent liabilities................................ (649,743)
----------
Stockholders' equity........................................ $ 429,362
==========
Revenues.................................................... $ 29,953
Gross profit................................................ $ 281
Net loss.................................................... $ (42,277)
</TABLE>
On March 30, 1999, WCG acquired 19.9% of the common stock of Metrocom S.A.,
a start-up telecommunications company in Chile, for $15 million. WCG also paid
$9.5 million for warrants to purchase up to an additional 30.1% of Metrocom S.A.
If exercised, the warrants must be exercised in total and have an aggregate
exercise price of approximately $10 million. The warrants effectively expire
March 30, 2003. The investment in Metrocom S.A. is accounted for under the cost
method.
F-28
<PAGE> 190
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of March 31, 1999 (unaudited) and December
31 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIABLE MARCH 31, -----------------------
LIVES 1999 1998 1997
-------------- ----------- ----------- ---------
(IN YEARS) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiber........................ 25-30 $ 116,511 $ 116,439 $ 23,712
Optronics.................... 7-10 196,550 167,997 144,191
Right-of-way................. 20-40 135,113 135,113 5,291
Computer equipment........... 3 73,979 65,126 29,835
Customer premise equipment... 3 32,059 30,616 30,736
General office furniture and
fixtures................... 3-5 57,428 61,300 32,935
Buildings and leasehold 30 or life of
improvements............... lease 46,985 41,154 10,961
Construction in progress..... Not applicable 199,252 130,063 218,752
Other........................ Various 133,875 127,886 37,642
--------- --------- ---------
991,752 875,694 534,055
Less accumulated
depreciation and
amortization............ (210,428) (179,969) (126,403)
--------- --------- ---------
$ 781,324 $ 695,725 $ 407,652
========= ========= =========
</TABLE>
In 1996, WCG agreed to exchange dark fiber along one of its fiber routes
for dark fiber from another party's route. The agreement was subsequently
amended to include exchanges of both dark fiber and fiber capacity leases. In
the nonmonetary exchange of dark fiber, WCG assigned a basis of approximately
$50.6 million to the dark fiber received, representing the book value of the
dark fiber relinquished. The exchange of leases results in revenue of $100,000
per month and costs of sales in the same amount. The lease is a ten year lease
with a ten year renewal option. The amount to be paid under the renewal option
is to be determined at the time the renewal option is exercised based on fair
market value to be determined at that time. The economic life of the property is
25 years. Transfer of title does not occur at the end of the lease term and
there is not a bargain purchase option.
In connection with its fiber build projects, WCG periodically enters into
various agreements to obtain the use of property rights from Williams' pipeline
companies in exchange for telecommunications services. Under these agreements,
WCG commits to provide various levels and types of services as consideration for
the right-of-way obtained. As of December 31, 1998, such commitments were not
material.
Commitments for construction and acquisition of property, plant and
equipment are approximately $808,183,000 as of December 31, 1998. Included in
this amount is $470,440,000 for the purchase of optronics equipment from Nortel
to be used in building the network pursuant to an agreement with Nortel to
purchase $600 million of optronics equipment. In addition, included in the
commitments is $315,556,000 for the purchase of wireless capacity.
F-29
<PAGE> 191
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 17, 1998, WCG entered into two agreements with WinStar
Communications, Inc. ("WinStar"). WCG has a 25 year indefeasible right to use
approximately 2% of WinStar's wireless local capacity in exchange for payments
equal to $400 million. WinStar has a 25 year indefeasible right to use four
strands of WCG's fiber over 15,000 route miles on the network, a transmission
capacity agreement with a minimum commitment for approximately $120 million in
specified circuits over a twenty-year term and colocation space rental and
maintenance services in exchange for monthly payments equal to an aggregate of
approximately $644 million over the next seven years. As of March 31, 1999,
WinStar has paid WCG approximately $15.3 million. WinStar has constructed
approximately 60 hubs, or antenna sites, which are currently available to WCG.
WinStar intends to construct 270 hubs by the end of 2001, and WCG will have the
ability to use all of these hubs. WCG will pay WinStar the $400 million over the
next four years as WinStar completes construction of the hubs. As of March 31,
1999, WCG has paid WinStar approximately $84 million.
As a result of certain valuation matters and various timing differences
associated with the payment and receipt of cash, Williams cash payments to
WinStar represent cash advances. Accordingly, as WCG pays WinStar, a portion of
the payments will be recorded as an advance that will be returned based upon
WinStar's payment schedule.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' centralized cash management system, WCG's cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amount of these credit balances included in accounts payable is
$51,831,000 and $23,255,000 as of December 31, 1998 and 1997, respectively.
Accrued liabilities as of December 31 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Employee costs......................................... $ 68,025 $ 49,276
Deferred revenue....................................... 67,228 45,601
Job costs and customer deposits........................ 19,161 19,258
Warranty............................................... 10,967 13,232
Other.................................................. 33,295 49,612
-------- --------
$198,676 $176,979
======== ========
</TABLE>
F-30
<PAGE> 192
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt (excluding amounts due affiliates as disclosed in Note 14)
as of March 31, 1999 (unaudited) and December 31 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1999 (UNAUDITED) 1998 1997
---------------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Credit agreement......................... $315,000 $ -- $125,000
Other.................................... 4,012 3,710 1,941
-------- ------ --------
319,012 3,710 126,941
Current maturities....................... 622 690 1,195
-------- ------ --------
Long-term debt........................... $318,390 $3,020 $125,746
======== ====== ========
</TABLE>
In July 1997, Solutions LLC and Williams entered into an unsecured credit
agreement with a bank. Under the terms of the credit agreement, Solutions LLC
has access to $300,000,000. Interest is payable monthly and accrues at rates
which vary with current market conditions. At December 31, 1997, the interest
rate was 6.2%. On January 26, 1999, WCG was added to the unsecured credit
agreement and agreed that the aggregate borrowings would not exceed
$400,000,000, including Solutions LLC's availability. Williams is the guarantor
for WCG under the credit agreement. WCG and Solutions LLC's availability under
the credit agreement is subject to borrowings by other Williams affiliates. On
March 25, 1999, WCG borrowed $265 million under the credit agreement for the
additional investment in ATL described in Note 7. At March 31, 1999, the
interest rate was 7.75%.
On April 16, 1999, WCG entered into a $1.4 billion unsecured revolving
credit facility which is guaranteed by Williams. The facility will expire on
September 30, 1999. As of April 30, 1999, WCG has borrowed $300 million on this
facility, of which the proceeds were used to reduce the outstanding amount under
the July 1997 unsecured credit agreement.
Cash payments for interest were $2,427,000, $5,467,000 and $205,000 in
1998, 1997 and 1996, respectively.
F-31
<PAGE> 193
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents changes in the components of accumulated other
comprehensive income (loss).
<TABLE>
<CAPTION>
UNREALIZED FOREIGN
APPRECIATION CURRENCY
(DEPRECIATION) TRANSLATION
ON SECURITIES ADJUSTMENTS TOTAL
-------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance as of December 31, 1996............ $ -- $ -- $ --
Current period change:
Pre-income tax amount.................... (3,913) (1,131) (5,044)
Income tax benefit....................... 1,565 -- 1,565
-------- -------- --------
Balance as of December 31, 1997............ (2,348) (1,131) (3,479)
Current period change:
Pre-income tax amount.................... 45,305 (1,792) 43,513
Income tax expense....................... (15,328) -- (15,328)
-------- -------- --------
29,977 (1,792) 28,185
-------- -------- --------
Balance as of December 31, 1998............ 27,629 (2,923) 24,706
Current period change:
Pre-income tax amount (unaudited)........ 114,657 (23,194) 91,463
Income tax expense (unaudited)........... (46,896) -- (46,896)
-------- -------- --------
67,761 (23,194) 44,567
-------- -------- --------
Balance as of March 31, 1999 (unaudited)... $ 95,390 $(26,177) $ 69,273
======== ======== ========
</TABLE>
12. STOCK-BASED COMPENSATION
Williams and WCG have several plans providing for Williams
common-stock-based awards to its employees and employees of its subsidiaries.
The plans permit the granting of various types of awards including, but not
limited to, stock options, stock-appreciation rights, restricted stock and
deferred stock. Awards may be granted for no consideration other than prior and
future services or based on certain financial performance targets being
achieved. The purchase price per share for stock options and the grant price for
stock-appreciation rights may not be less than the market price of the
underlying stock on the date of grant. Depending upon terms of the respective
plans, stock options become exercisable after three or five years, subject to
accelerated vesting if certain future stock prices or specific financial
performance targets are achieved. Stock options expire ten years after grant.
Williams' employee stock-based awards are accounted for under provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Williams' fixed plan common stock
options do not result in compensation expense, because the exercise price of the
stock options equals the market price of the underlying stock on the date of
grant.
Pro forma net income and earnings per share, assuming WCG had applied the
fair-value method of SFAS No. 123, "Accounting for Stock-Based Compensation," in
measuring compensation cost beginning with 1996 employee stock-based awards, are
as follows:
F-32
<PAGE> 194
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -----------------
PRO PRO PRO
FORMA REPORTED FORMA REPORTED FORMA REPORTED
-------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net loss (thousands)............... (190,329) (180,929) (40,543) (35,843) (4,014) (3,514)
Loss per share..................... (.42) (.40) (.09) (.08) (.01) (.01)
</TABLE>
Pro forma amounts for 1998 include the remaining total compensation expense
from the awards made in 1997, as these awards fully vested in 1998 as a result
of the accelerated vesting provision. Pro forma amounts for 1997 include the
remaining total expense from the awards made in 1996, as these awards fully
vested in 1997 as a result of the accelerated vesting provisions. Since
compensation expense from stock options is recognized over the future years'
vesting period for pro forma disclosure purposes, and additional awards
generally are made each year, pro forma amounts may not be representative of
future years' amounts.
The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: expected life of the stock options of approximately 5 years;
volatility of the expected market price of Williams common stock of 25 percent
(26 percent in 1997 and 22 percent in 1996); risk-free interest rate of 5.3
percent (6.1 percent in 1997 and 6.0 percent in 1996); and a dividend yield of
2.0 percent (1.7 percent in 1997 and 2.0 percent in 1996).
The following summary represents stock option information for WCG
employees:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C>
Options granted:
Williams plan.................................... 1,743 2,193 2,078
WCG plan......................................... 483 -- --
Weighted-average grant date fair value............. $ 8.19 $ 5.98 $ 3.92
Options outstanding -- December 31:
Williams plan.................................... 5,432 4,954 3,015
WCG plan......................................... 465 -- --
Options exercisable -- December 31:
Williams plan.................................... 3,800 2,726 962
WCG plan......................................... -- -- --
</TABLE>
The following summary represents deferred share information for WCG
employees:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Deferred shares granted:
Williams plan............................... 109,565 14,232 209,410
WCG plan.................................... 165,000 -- --
Weighted-average grant date fair value of
shares granted.............................. $ 31.59 $ 19.94 $ 16.24
Percent of grant expensed in year of grant.... 11% 100% 12%
Shares issued................................. 30,404 22,218 11,544
</TABLE>
Deferred shares are valued at the date of the award. The remaining value of
the deferred shares not expensed in the year granted is amortized over the
vesting period.
F-33
<PAGE> 195
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. LEASES
Future minimum annual rentals under noncancellable operating leases as of
December 31, 1998 are payable as follows:
<TABLE>
<CAPTION>
OFF-NETWORK
OFFICE CAPACITY
RENTAL AND EQUIPMENT OTHER TOTAL
-------- ------------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999............................. $ 24,756 $ 79,730 $ 5,019 $109,505
2000............................. 21,173 134,851 5,030 161,054
2001............................. 17,935 104,117 1,689 123,741
2002............................. 13,118 91,622 691 105,431
2003............................. 11,169 69,396 691 81,256
Thereafter....................... 38,825 6,650 9,788 55,263
-------- -------- ------- --------
Total minimum annual rentals..... $126,976 $486,366 $22,908 $636,250
======== ======== ======= ========
</TABLE>
During 1998, WCG entered into an operating lease agreement covering a
portion of its fiber optic network. The total estimated cost of the network
assets to be covered by the lease agreement is $750 million. The lease term will
include an interim term, during which the covered network assets will be
constructed, that is anticipated to end no later than December 31, 1999, and a
base term. The interim and base terms are expected to total five years, and if
renewed, could total seven years.
WCG has an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that WCG does not exercise its purchase option, WCG expects the fair
market value of the covered network assets to substantially reduce Williams
payment under the residual value guarantee. WCG's disclosures for future minimum
annual rentals under noncancellable operating leases do not include amounts for
the residual value guarantee. As of March 31, 1999 (unaudited) and December 31,
1998, $368 million and $287 million, respectively, of costs have been incurred
by the lessor.
Total capacity expense incurred from leasing from a third party's network
(off-network capacity expense) was $110,804,000, $68,824,000 and $45,033,000 in
1998, 1997 and 1996, respectively. All other rent expense was $37,826,000,
$24,912,000 and $17,588,000 in 1998, 1997 and 1996, respectively. Included in
other rent expense is office space charged from affiliates of $3,664,000,
$2,475,000 and $2,247,000 in 1998, 1997 and 1996, respectively.
14. RELATED PARTY TRANSACTIONS
Williams charges its subsidiaries, including WCG, for certain corporate
administrative expenses, which are directly identifiable or allocable to the
subsidiaries. Nortel also charges Solutions LLC for certain corporate
administrative expenses which are directly identifiable or
F-34
<PAGE> 196
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allocable to Solutions LLC. Details of such charges for the three months ended
March 31, 1999 and 1998 (unaudited) and the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEAR ENDED DECEMBER 31,
---------------------- ---------------------------
1999 1998 1998 1997 1996
--------- --------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct costs, charged from:
Williams.................. $ 4,573 $ 2,783 $13,364 $ 8,418 $ 6,370
Nortel.................... 182 3,855 10,727 15,260 --
Allocated charges from
Williams.................. 3,350 4,492 11,654 9,230 6,643
------- ------- ------- ------- -------
$ 8,105 $11,130 $35,745 $32,908 $13,013
======= ======= ======= ======= =======
</TABLE>
The above costs are reflected in selling, general and administrative
expenses in the accompanying consolidated statements of operations. Direct costs
charged from Williams or Nortel represent the direct costs of goods or services
provided by Williams or Nortel at our request as well as the cost of centralized
administrative services. Williams allocates its cost of centralized
administrative services based on a logical representation of the benefits
received, such as allocating Williams' human resources department based on
employee headcount. Allocated charges from Williams represent an allocation of
general corporate charges based on a three factor formula which considers
operating results, property, plant and equipment and payroll. In management's
estimation, the allocation methodologies used are reasonable and the direct and
allocated charges approximate amounts that would have been incurred on a
stand-alone basis.
Included in WCG's revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of $2,342,000,
$1,878,000, $7,710,000, $5,217,000 and $4,918,000 for the three months ended
March 31, 1999 and 1998 (unaudited) and the years ended December 31, 1998, 1997
and 1996, respectively. In addition, WCG's revenues include charges to Williams'
gas pipelines for managing microwave frequencies of $1,067,000, $1,053,000,
$4,254,000, $3,754,000 and $1,381,000 for the three months ended March 31, 1999
and 1998 (unaudited) and the years ended December 31, 1998, 1997 and 1996,
respectively.
As of March 31, 1999 (unaudited) and December 31, 1998 and 1997, WCG's net
amount due to or due from affiliates consists of an unsecured promissory note
agreement with Williams for both advances to and from Williams depending on the
respective cash positions of the companies. The agreement does not require
periodic principal payments or commitment fees and accordingly is normally
classified as noncurrent as periodic principal payments are not required.
Interest on noncurrent receivables and payables is accrued monthly and rates
vary with market conditions. The interest rate for noncurrent receivables and
payables with Williams at the end of the period was 5.6%, 5.8% and 6.2% for
March 31, 1999 (unaudited) and December 31, 1998 and 1997, respectively. In
addition, the net amount due to or from affiliates consists of normal
F-35
<PAGE> 197
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
course receivables and payables resulting from the use of each others services.
A summary of these payables and receivables as of March 31, 1999 (unaudited) and
December 31 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1999 (UNAUDITED) 1998 1997
---------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Due from Williams...................... $ -- $ 3,881 $ --
======== ======== ========
Due to affiliates:
Williams............................... $ 32,222 $ -- $ 24,636
Nortel................................. 30,685 37,187 98,948
Other.................................. 1,243 1,323 --
-------- -------- --------
Total due to affiliates.................. $ 64,150 $ 38,510 $123,584
======== ======== ========
Noncurrent:
Due from Williams...................... $ -- $ -- $ 97,097
======== ======== ========
Due to affiliates:
Williams............................ $818,114 $614,343 $ --
Other............................... 6,930 6,367 --
-------- -------- --------
Total due to affiliates.................. $825,044 $620,710 $ --
======== ======== ========
</TABLE>
Interest expense to Williams was $9,307,000, $467,000, $16,933,000,
$2,657,000 and $16,776,000 for the three months ended March 31, 1999 and 1998
(unaudited) and the years ended December 31, 1998, 1997 and 1996, respectively.
No amounts were paid to Williams for interest in the three months ended March
31, 1999 (unaudited) or the years ended December 31, 1998, 1997 and 1996.
Interest income from Williams was $2,932,000 in 1997. There was no interest
income from Williams for the three months ended March 31, 1999 (unaudited) or
the years ended December 31, 1998 and 1996.
In connection with the formation of Solutions LLC, a $160,873,000 note
payable to Nortel was established which was paid by Solutions LLC in August
1997. Total interest expensed and paid on the note during 1997 was $2,491,000.
Solutions LLC purchased inventory from Nortel for use in equipment
installations for $467,476,000 in 1998 and $310,599,000 for the period from
April 30, 1997 (date on which Nortel became a related party) to December 31,
1997. Solutions LLC has a distribution agreement with Nortel that extends
through December 2002. If for two consecutive years the percentage of Nortel
products purchased by Solutions LLC falls below approximately 78% and the rate
of growth of the purchase of Nortel products by Solutions LLC during the
two-year period is below that of other Nortel distributors, Nortel may require
WCG to buy, or WCG may require Nortel to sell, Nortel's entire interest in
Solutions LLC at market value.
In addition, Network purchased from Nortel optronics for use on its network
for $99,311,000 in 1998 and $30,241,000 for the period from April 30, 1997 to
December 31, 1997.
F-36
<PAGE> 198
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
During 1998, Solutions LLC and one of its equipment suppliers amended an
existing take-or-pay contract for equipment purchases. The amended purchase
commitment terms require Solutions LLC equipment purchases from the supplier
totaling $10,000,000, $19,000,000 and $25,000,000 during the twelve-month
periods ended March 31, 1999, 2000 and 2001, respectively. Solutions LLC met its
March 31, 1999 commitment.
WCG is a party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of all claims, legal actions and complaints after consideration of
amounts accrued, insurance coverage, or other indemnification arrangements will
not have a materially adverse effect upon WCG's future financial position,
results of operations or cash flows.
16. FINANCIAL INSTRUMENTS
FAIR VALUE METHODS
The following methods and assumptions were used by WCG in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet approximate fair value due to the short-term maturity of
these instruments.
Investments -- cost method and advances to investees: Fair value of
other cost method investments and advances to investees are estimated to
approximate historically recorded amounts as the operations underlying
these investments are in their initial phases.
Long-term debt: WCG's long-term debt consists primarily of variable
rate borrowings, including amounts from affiliates, for which the carrying
value approximates the fair value.
OFF-BALANCE-SHEET CREDIT AND MARKET RISK
In 1997, WCG entered into an agreement with Williams whereby WCG would sell
to Williams, on an ongoing basis, certain of WCG's accounts receivable. At
December 31, 1998 and 1997, $33,767,000 and $25,664,000 of WCG's accounts
receivable have been sold, respectively, to Williams. On January 31, 1999, WCG's
agreement with Williams expired and was not renewed.
CONCENTRATION OF CREDIT RISK
WCG's customers include numerous corporations. Approximately 68% and 86% of
receivables at December 31, 1998 and 1997, respectively, are for Solutions
related services. Approximately 25% and 3% of receivables at December 31, 1998
and 1997, respectively, are for network related services. WCG serves a wide
range of customers, none of which is individually significant to its business.
While sales to these various customers are generally unsecured, the financial
condition and creditworthiness of customers are routinely evaluated.
17. SUBSEQUENT EVENTS
On February 8, 1999 WCG and SBC announced a series of alliance agreements
in addition to SBC's plans to acquire up to 10% of the common stock of WCG. The
private investment is expected to occur simultaneously with the initial public
offering. SBC's initial investment will be
F-37
<PAGE> 199
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
limited to $500 million, which will be reinvested by WCG in its business. If
SBC's investment equals less than 10% of the common stock, SBC has the ability
to purchase the remainder of the 10% in subsequent public offerings, if they
occur. SBC's purchase of WCG stock is contingent upon due diligence, WCG
completing its initial public offering and the continuing existence of the
agreement under which WCG provides network transport services. The initial
public offering price, less the underwriters' discount will determine the price
of the SBC shares.
Once SBC receives regulatory approval to enter the long-distance business
within one state in its local service territory, it will have one seat on the
WCG board of directors. WCG will serve as SBC's preferred provider for all
domestic U.S. transport services. SBC will be WCG's preferred provider for
platform products and certain international transport services, so long as such
preferred services are provided at mutually acceptable prices and regulations do
not prohibit such an arrangement. WCG will work with SBC to connect SBC's
international cables to WCG's domestic network. The agreement also will allow
both parties to cross-market certain of each others services, and specifically
enable Solutions to offer SBC-branded products and services as an addition to
its array of voice and data communication equipment products and network
services.
Williams has a call option to purchase not less than all of the shares of
stock acquired by SBC, in the event of the termination, other than due to a
breach by WCG, of certain agreements with SBC, provided that Williams has at
least a 50% interest in WCG. The purchase price is equal to the market price at
the time of exercise less the underwriting discounts and commissions applicable
to the shares at the time of the initial offering.
On May 21, 1999, WCG entered into two memoranda of understanding with
Metromedia Fiber Network, Inc. under which both parties agree to enter into
20-year agreements with the other, providing for the following:
- Metromedia will lease to WCG dark fiber on up to 3,200 route miles on
its local networks, 6 to 96 fibers per segment and will provide WCG
with maintenance services and dark fiber connectivity to approximately
250 points of presence and data centers, in exchange for approximately
$317 million payable by WCG over the duration of the agreement
- Metromedia will lease from WCG six dark fibers over substantially all
of the Williams network and WCG will provide colocation and
maintenance services in exchange for approximately $317 million
payable by Metromedia over the duration of the agreement
On May 24, 1999, WCG and Intel Corporation, on behalf of Intel Internet
Data Services, entered into a long-term master alliance agreement. The alliance
agreement provides that WCG and Intel Internet Data Services will purchase
services from one another pursuant to a service agreement and create a
co-marketing arrangement, each of which will have shorter terms than that of the
master alliance agreement. The services WCG will provide include domestic
transport services and may also include Internet connectivity. Intel will
provide web hosting services pursuant to the co-marketing arrangement.
Intel also entered into a securities purchase agreement with WCG and
Williams to purchase at the closing of this offering the number of shares of
common stock equal to $200 million divided by the initial public offering price
less the underwriting discount. The parties' obligations under the securities
purchase agreement are subject to closing conditions, including that the
F-38
<PAGE> 200
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
alliance agreement is in full effect and that at least $500 million is raised in
this offering and that necessary governmental approvals have been obtained.
In connection with its purchase of common stock, Intel has agreed not to
transfer any of its shares of common stock to anyone except affiliates for a
period of eighteen months, but this transfer restriction provision will be
terminated if we have a change of control. In addition, the transfer restriction
does not prohibit Intel from participating in future registered offerings
initiated by us or from engaging in hedging transactions commencing six months
from the date of the equity offering. Intel also has registration rights in
connection with its holdings.
On May 25, 1999, WCG entered into a non-exclusive alliance agreement with
Telefonos de Mexico. Under the terms of the agreement, both WCG and Telefonos de
Mexico must first seek to obtain select international wholesale services between
Mexico and the United States and various other services from each other. WCG and
Telefonos de Mexico will also sell each other's products to their respective
customers and negotiate the terms under which both parties will provide
installation and maintenance of communications equipment and other services for
the other. In addition, WCG and Telefonos de Mexico will interconnect their long
distance fiber-optic networks to jointly develop seamless voice, data and video
transport services to serve their respective markets.
In addition, on May 25, 1999, Telefonos de Mexico entered into a securities
purchase agreement with WCG and Williams to purchase at the closing of the
equity offering up to the number of shares of common stock equal to $100 million
divided by the initial public offering price less the underwriting discount.
Telefonos de Mexico's obligation and ability to make the investment is
subject to conditions at closing, including that the alliance agreement with
Telefonos de Mexico be in full effect and that SBC approves the portion of
Telefonos de Mexico's investment that exceeds $25 million, which would require
SBC's investment to be limited to $425 million.
In connection with its purchase of WCG common stock Telefonos de Mexico has
agreed to certain restrictions and will receive certain privileges, including
the following:
- Telefonos de Mexico has agreed not to acquire more than 10% of WCG's
common stock for a period of 10 years
- Telefonos de Mexico has agreed not to transfer to anyone, except
affiliates, any of its shares of WCG's common stock for a period of 3 1/2
years, but this transfer restriction provision will be terminated if WCG
has a change of control
- Telefonos de Mexico has agreed that WCG has the right, for a period of
3 1/2 years, to repurchase WCG stock at market value less the
underwriter's discount if the alliance agreement is terminated for any
reason other than a breach by WCG
Telefonos de Mexico also has registration rights in connection with its
holdings.
On May 27, 1999, Williams contributed its investments in the holding
companies, which owned the investments in ATL, PowerTel and MetroCom, to WCG at
their historical book values. The assets were transferred at their historical
book values, similar to a pooling of interests, as Williams had common control
over WCG and the holding companies contributed.
During the second quarter, management determined that the businesses that
provide audio and video conferencing services and closed-circuit video
broadcasting services for businesses were
F-39
<PAGE> 201
WILLIAMS COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
held for sale. On June 30, 1999, WCG signed an agreement with Genesys, S.A. to
sell its business which provides audio and video conferencing services for
approximately $39.0 million. WCG anticipates that this transaction will close
prior to August 31, 1999. The expected selling price of both the sale to Genesys
and of the other business less costs to sell the assets is expected to result in
a loss of approximately $26.0 million in the second quarter of 1999. Costs
associated with exit activities could result in additional charges of up to $4.0
million.
F-40
<PAGE> 202
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Williams Communications Group, Inc.
We have audited the accompanying combined statements of income and changes
in net assets and combined statements of cash flows of the Direct Sales
Subsidiary, Nortel Communications Systems ("NCS") and TTS Meridian Systems, Inc.
("TTS") (collectively, the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") for the four months ended April 30, 1997 and the year
ended December 31, 1996. These financial statements are the responsibility of
the Business' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of the Business' operations and
changes in net assets and its cash flows for the four months ended April 30,
1997 and the year ended December 31, 1996, in conformity with generally accepted
accounting principles in the United States.
DELOITTE & TOUCHE LLP
Toronto, Ontario
March 26, 1999
F-41
<PAGE> 203
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
COMBINED STATEMENTS OF INCOME AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Sales....................................................... $250,205 $733,111
Cost of Sales............................................... 182,539 527,980
-------- --------
Gross Profit................................................ 67,666 205,131
-------- --------
Selling, general and administrative......................... 55,242 167,234
Other....................................................... -- 1,023
-------- --------
Operating income............................................ 12,424 36,874
Interest income............................................. 592 1,405
-------- --------
Income before provision for income taxes.................... 13,016 38,279
Provision for income taxes (Note 5)......................... 5,330 16,018
-------- --------
Net income.................................................. $ 7,686 $ 22,261
======== ========
Net Assets:
Beginning of period......................................... $131,505 $140,201
Net Income.................................................. 7,686 22,261
Distribution from/(to) Nortel............................... 8,339 (30,957)
-------- --------
End of period............................................... $147,530 $131,505
======== ========
</TABLE>
F-42
<PAGE> 204
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1997 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 7,686 $ 22,261
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,121 6,993
Deferred taxes............................................ 705 (2,508)
Loss on write-down of property and equipment.............. -- 1,108
Cash provided (used) by changes in:
Receivables............................................ (12,859) 3,928
Inventories............................................ (1,873) (3,721)
Prepaid expenses....................................... 69 428
Accounts payable and accrued liabilities............... (2,832) 4,236
Distribution from/(to) Nortel.......................... 8,339 (30,957)
Other.................................................. 396 4,308
-------- --------
Net cash provided by operating activities................... 1,752 6,076
-------- --------
INVESTING ACTIVITIES
Payments for purchases of property and equipment............ (1,752) (6,076)
-------- --------
Net cash used by investing activities....................... (1,752) (6,076)
-------- --------
Increase in cash............................................ -- --
Cash at beginning of periods................................ -- --
-------- --------
Cash at end of periods...................................... $ -- $ --
======== ========
</TABLE>
F-43
<PAGE> 205
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOUR MONTHS ENDED APRIL 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION OF THE COMBINED FINANCIAL STATEMENTS
On April 30, 1997 the combined net assets of the Direct Sales Subsidiary,
Nortel Communications Systems, Inc. ("NCS"), and TTS Meridian Systems, Inc.
("TTS"), (collectively the "Business") of Enterprise Networks of Northern
Telecom Limited ("Nortel") were sold to a newly formed entity. Under the terms
of the purchase and sale agreement, Williams Communications Group, Inc. ("WCG")
and Nortel formed a new entity, Wiltel Communications, LLC (today known as
Williams Communications Solutions, LLC or "WCS").
The accompanying combined statements of income and changes in net assets,
and combined statements of cash flows ("the statements") have been prepared to
reflect the income, changes in net assets and cash flows associated with the
Business as if it had operated on a stand alone basis rather than as part of
Nortel.
The Business is comprised of the following:
-- NCS, which includes the following divisions: NCS East and NCS West; and
the consolidated subsidiaries Nortel Federal Systems, Inc., and Bell
Atlantic Meridian Systems ("BA Meridian"). BA Meridian was a joint
venture general partnership previously owned 80% by NCS and 20% by Bell
Atlanticom Systems Inc. Immediately prior to transferring the combined
net assets of the Business to WCS, Nortel purchased the 20% interest in
BA Meridian held by Bell Atlanticom Systems Inc. On April 30, 1997, 100%
of BA Meridian's net assets were sold to WCS, as part of the combined
net assets contributed, and;
-- TTS
All transactions and balances between combined entities have been
eliminated.
The combined statements include 100% of the results of BA Meridian. The 20%
portion owned by Bell Atlanticom Systems Inc. and included in these combined
statements amounted to $386 and $2,089 of net income, for the four months ended
April 30, 1997 and the year ended December 31, 1996, respectively.
The transfer of the net assets of the Business was governed by the
following agreements: the Limited Liability Agreement of Wiltel Communications,
LLC, dated as of April 1, 1997; the Formation Agreement between Northern Telecom
Inc., and Williams Communications Group, Inc. dated as of April 1, 1997, and the
Share Purchase Agreements for TTS Meridian Systems, Inc., by and between
Northern Telecom Limited and Williams Telecommunications Systems, Inc. ("WTI"),
dated April 30, 1997, collectively referred to as the "Agreement."
2. THE BUSINESS
The Business' principal activity is the marketing, sales and distribution
of telecommunications equipment. The Business is highly dependent on Nortel, as
substantially all of the products distributed are purchased from Nortel.
F-44
<PAGE> 206
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
REVENUES AND RELATED COST OF SALES
Revenues and related costs for contracts and customer service orders are
recognized on a percentage-of-completion basis for individual contracts or
elements thereof, based on work performed, date of delivery to customer site,
and the ratio of costs incurred, to total estimated costs. The equipment portion
of contracts is recognized upon shipment.
Maintenance contract revenue is deferred and recognized over the life of
the contract on a straight-line basis.
TRANSLATION OF FOREIGN CURRENCIES
Except for TTS, the functional currency of each of the combined entities is
the U.S. dollar. The functional currency of TTS is the Canadian dollar. TTS'
operations are translated as follows:
i. Assets and liabilities are translated at the exchange rates in
effect at the balance sheet date.
ii. Revenues and expenses, including gains and losses on foreign
exchange transactions, are translated at average rates for the period.
iii. The unrealized translation gains and losses on the Business' net
investment, including long-term intercompany advances, in these operations
are normally accumulated in a separate component of stockholders' equity,
which would be described as currency translation adjustment ("CTA").
For the purposes of these financial statements CTA was not material, and
has been included as part of the combined net assets.
DEPRECIATION
Depreciation is generally calculated under the straight-line method using
rates based on the expected useful lives of the assets of 5 to 10 years. The
underlying assets being depreciated consist principally of computers and
telecommunications equipment, furniture and fixtures, vehicles and leasehold
improvements.
The cost of maintenance and repairs, which do not significantly improve or
extend the life of the respective assets, is charged to expense as incurred.
GOODWILL
Goodwill represents the excess, at the dates of acquisition, of the costs
over the fair values of the net assets of certain companies acquired by the
Business, and is amortized on a straight-line basis over an estimated life of 3
years. The carrying value of goodwill is evaluated to determine whether a
potential permanent impairment exists, management considers the financial
condition and expected future earnings before tax using projected financial
performance. A permanent impairment in the value of goodwill is written off
against earnings in the year such impairment is identified.
F-45
<PAGE> 207
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Business, except for the TTS portion, was not a taxable entity when
operated by Nortel; rather, its tax position was considered as part of the
consolidated tax calculation performed for Nortel. For the purposes of
presenting the Business as a stand alone entity an estimate of the tax position
has been calculated. The Business used the asset and liability method of
accounting for deferred income taxes. Under this method, deferred income tax
assets and liabilities are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, computed based on the rates and
provisions as measured by tax laws.
USE OF ESTIMATES
The statements reflect the operations and cash flows of the Business. The
statements have been prepared from the books, records and accounts of the
Business (including combining workpapers and supporting entries) on the basis of
established accounting methods, policies, practices and procedures and the
judgements and estimation methodologies used by Nortel and the Business, in
accordance with the generally accepted accounting principles of the United
States. All of the allocations and estimates reflected in the statements are
based on assumptions and estimates that management believes to be reasonable.
Actual results could differ significantly from those estimates.
WARRANTIES
Warranty and product allowances on sales are estimated and charged to cost
of sales at the time the products are sold to customers.
RECENT ACCOUNTING STANDARDS
Due to the sale of the Business on April 30, 1997, the results of
operations, cash flows and financial position for the Business subsequent to
that date would be included in the financial statements of WCS. New accounting
standards would be taken into consideration by WCS in the preparation of their
financial statements.
4. GOODWILL
Total goodwill amortization charged to operations for the four months ended
April 30, 1997 and the year ended December 31, 1996 was $333 and $1,283,
respectively.
F-46
<PAGE> 208
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Current
Federal..................................... $1,851 $13,868
State/Provincial............................ 601 2,150
------ -------
2,452 16,018
------ -------
Deferred
Federal..................................... 2,528 --
State/Provincial............................ 350 --
------ -------
2,878 --
------ -------
Total provision............................... $5,330 $16,018
====== =======
</TABLE>
Reconciliations of the benefit for income taxes from the statutory rate to
the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Statutory rate................................ 35.00% 35.00%
Increases (reductions) in taxes from:
State/Provincial rate....................... 7.78 5.43
Goodwill.................................... 0.13 0.66
Other....................................... 0.58 0.83
----- -----
Total provision............................... 43.49% 41.92%
===== =====
</TABLE>
The tax provision above is an estimate to reflect what the Business would
have paid had it been a stand alone company. Therefore, cash taxes paid are not
disclosed in these statements. Actual income taxes payable, if any, were paid by
Nortel, on behalf of the Business, on a consolidated basis.
6. PLANS FOR EMPLOYEES' PENSIONS
As the Business was part of Nortel as of April 30, 1997 and December 31,
1996, the eligible employees of the Business were members of the Nortel pension
plans. Nortel has non-contributory defined benefit pension plans covering
substantially all of its employees. The benefits are based on length of service
and rates of compensation.
Nortel's policy is to fund pensions based on widely used actuarial methods
as permitted by pension regulatory authorities. The funded amounts reflect
actuarial assumptions regarding compensation, interest, and other projections.
Plan assets are represented primarily by common stocks, bonds, debentures,
secured mortgages, and property.
Pension costs reflected in the combined statements of income are based on
the unit credit method of valuation of pension plan benefits.
F-47
<PAGE> 209
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The following disclosure presents the estimated expense and funded status
reconciliations for the portions of the Nortel plan allocated to WCS employees
as if the Business had operated on a stand alone basis. Subsequent to April 30,
1997, WCS curtailed the plan relating to the transferred employees and later
settled the plan. As a result the plan as described below no longer exists.
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value............................. $45,464 $43,069
------- -------
Actuarial present value of benefit obligation
Accumulated benefit obligation
Vested........................................... 21,507 20,228
Non-vested....................................... 4,534 4,266
Effect of salary projection......................... 17,322 16,299
------- -------
Projected benefit obligation.......................... 43,363 40,793
------- -------
Excess of plan assets at fair value over projected
benefit obligations................................. 2,101 2,276
Less:
Unrecognized net transition assets.................. 1,000 1,030
Unrecognized prior service costs.................... (1,225) (1,251)
Unrecognized net gains.............................. 557 557
------- -------
Pension asset....................................... $ 1,769 $ 1,940
======= =======
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
PENSION EXPENSE:
Service cost -- benefits earned....................... $ 1,424 $ 3,702
Interest cost on projected plan benefits.............. 1,163 2,926
Estimated return on plan assets....................... (1,301) (3,254)
Other
Amortization of net asset........................... (29) (88)
Amortization of unrecognized prior service cost..... 26 59
Amortization of net loss............................ -- 2
------- -------
Total expense for the period.......................... $ 1,283 $ 3,347
======= =======
Assumptions:
Discount rates...................................... 7.75% 7.75%
Rate of return on assets............................ 9.00% 9.00%
Rate of compensation increase....................... 4.5% 4.5%
</TABLE>
F-48
<PAGE> 210
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. POST RETIREMENT BENEFITS
The eligible employees of the Business were included in the Nortel post
retirement plans. The plans provided certain benefits other than pension to the
employees. The net post retirement costs include the following components:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
PLAN ASSETS AND LIABILITIES:
Plan assets at fair value............................. $ -- $ --
Accumulated post retirement benefit obligation........ 14,435 13,621
-------- --------
Deficiency of plan assets at fair value over projected
benefit obligation.................................. (14,435) (13,621)
Unrecognized prior service costs...................... 4,447 4,548
Unrecognized net gains................................ (183) (183)
-------- --------
Post retirement liability............................. $(10,171) $ (9,256)
======== ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
POST RETIREMENT EXPENSE:
Service cost........................................... $429 $1,095
Interest cost.......................................... 385 966
Other
Amortization of unrecognized prior service costs..... 100 300
---- ------
Total expense for the period........................... $914 $2,361
==== ======
Assumptions:
Weighted average discount rate....................... 7.75% 7.75%
Rate of compensation increase........................ 4.50% 4.50%
</TABLE>
The effect of a 1% increase in the assumed health care cost trend is not
material. The plan was unfunded at April 30, 1997 and December 31, 1996.
8. RELATED PARTY TRANSACTIONS
Transactions with Nortel and affiliated companies are significant. These
transactions occur at prices established between the Business and Nortel.
The Business purchased equipment based on Distribution Agreements with
other Nortel operating units, in the amount of $91,500 for the four months ended
April 30, 1997 and $287,100 for the year ended December 31, 1996. These amounts
reflect transfer prices equivalent to amounts which would have been charged to
any other third party distributor.
Pursuant to service arrangements with Nortel the Business paid
approximately $15,309 to Nortel during the four months ended April 30, 1997 and
$50,867 during the year ended December 31, 1996 for fringe benefits, accounting,
computer and other administrative services provided by Nortel. The charges were
based on actual costs incurred or allocated costs based on relative factors such
as square foot occupancy or head count. In management's estimates, the allocated
methodologies used are reasonable. In addition these amounts reflect fair value,
and
F-49
<PAGE> 211
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
approximate amounts that would have been incurred by the Business had it
purchased these services from third parties.
9. INFORMATION ON BUSINESS SEGMENT BY GEOGRAPHIC AREA
The Business operates in one business segment, telecommunications
equipment, and its activity consists of the sales and distribution of Nortel
products in North America.
GEOGRAPHIC AREA
The point of origin (the location of the selling organization) of revenues
and the location of the assets determine the geographic areas. The following
table sets forth information by geographic area:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Total revenues:
United States............................... $223,860 $651,429
Canada...................................... 26,345 81,682
-------- --------
Total customer revenues....................... 250,205 733,111
-------- --------
Contribution to operating earnings:
United States............................... 56,599 172,558
Canada...................................... 11,067 32,573
-------- --------
67,666 205,131
General corporate expenses.................... 54,650 166,852
-------- --------
Income before income taxes.................... $ 13,016 $ 38,279
======== ========
</TABLE>
10. STOCK-BASED COMPENSATION
Certain employees of the Business were participants of the Northern Telecom
Limited 1986 Stock Option Plan As Amended and Restated ("the Plan"). Under the
Plan, options to purchase common shares of Nortel were granted at the market
value on the effective date of the grant. Generally, options become exercisable
over two or three years, depending on the year of the grant, and expire after
ten years.
The Business' employee stock-based awards were accounted for under
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Common stock options do
not result in compensation expense, because the exercise price of the stock
options equals the market price of the underlying stock on the effective date of
grant.
SFAS No. 123, "Accounting For Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net income for the Business was $6,376
and $20,987 for the four months ended April 30, 1997 and the year ended December
31, 1996, respectively. Reported net income was $7,686 and $22,261, for the four
months ended April 30, 1997, and the year ended December 31, 1996,
F-50
<PAGE> 212
DIRECT SALES SUBSIDIARY, NORTEL COMMUNICATIONS SYSTEMS, INC.
AND TTS MERIDIAN SYSTEMS, INC. OF ENTERPRISE NETWORKS OF
NORTHERN TELECOM LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Since compensation expense from stock options is recognized over
the future years' vesting period for pro forma disclosure purposes, and
additional awards generally are made each year, pro forma amounts may not be
representative of future years' amounts.
These options were not assumed by WCS on the transfer of the net assets of
the Business, and employees could continue to hold the options of Nortel common
shares under the Plan.
<TABLE>
<CAPTION>
APRIL 30, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Options granted for the period.................... 144,200 135,900
Weighted-average grant date fair value............ $ 13.22 $ 9.92
Options outstanding at period end................. 282,600 240,286
Options exercisable at period end................. 60,850 54,786
</TABLE>
11. COMMITMENTS
As at April 30, 1997, the future minimum lease payments under operating
leases consisted of:
<TABLE>
<S> <C>
Remaining 8 months of 1997.................................. $10,017
1998........................................................ 12,276
1999........................................................ 8,330
2000........................................................ 5,276
2001........................................................ 1,532
Thereafter.................................................. 601
-------
Total....................................................... $38,032
=======
</TABLE>
Rent expense on operating leases for the four months ended April 30, 1997
and the year ended December 31, 1996 amounted to $4,738 and, $14,053,
respectively.
12. CONTINGENT LIABILITIES
The Business is, from time to time, a litigant in various claims and
proceedings arising from the normal course of business. Although the outcome of
these proceedings cannot be precisely determined, management believes, based on
currently known facts and circumstances, that the disposition of these matters
will not have a material adverse effect on the Business' financial position.
13. CREDIT RISK
The Business is exposed to credit risk from customers. Such risk is
minimized due to the nature of the telecommunications distribution business
which results in the Business transacting with a large number of diverse
customers.
F-51
<PAGE> 213
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
LOGO
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
LEHMAN BROTHERS
MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 214
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OUR SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE INTERNATIONAL PAGE]
SUBJECT TO COMPLETION, JULY , 1999
PROSPECTUS
_______ SHARES
[WILLIAMS LOGO]
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We will apply for
listing on the New York Stock Exchange under the symbol "WCG." We anticipate
that the initial public offering price will be between $
- ------ and $
- ------ per share.
We are offering
- ------------ shares. Of the shares being offered,
- ------------ shares are being offered outside the United States and Canada and
- ------------ shares are concurrently being offered in the United States and
Canada.
We are a subsidiary of The Williams Companies, Inc., and following this offering
The Williams Companies, Inc. will continue to hold a controlling interest in our
shares.
Investing in the shares involves risks. "Risk Factors" begin on page 9.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds, before expenses, to Williams Communications Group,
Inc....................................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
- --------- additional shares of common stock on the same terms and conditions as
set forth above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares to purchasers on or about
, 1999.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Joint Book-Running Managers Co-Lead Manager
LEHMAN BROTHERS SALOMON SMITH BARNEY MERRILL LYNCH
Structural Advisor INTERNATIONAL INTERNATIONAL
</TABLE>
CAZENOVE & CO.
BANK OF AMERICA INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE> 215
[ALTERNATE INTERNATIONAL PAGE]
SHARES
LOGO
WILLIAMS COMMUNICATIONS GROUP, INC.
COMMON STOCK
---------------------------------------
PROSPECTUS
, 1999
---------------------------------------
LEHMAN BROTHERS
SALOMON SMITH BARNEY INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
CAZENOVE & CO.
BANK OF AMERICA INTERNATIONAL LIMITED
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
<PAGE> 216
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the equity offering described in this registration statement
(other than the underwriting discount and commissions) will be as follows*:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 208,500
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... 252,600
Blue sky fees and expenses.................................. 10,000
Accounting fees and expenses................................ 1,050,000
Legal fees and expenses..................................... 1,400,000
Printing and engraving fees................................. 1,000,000
Miscellaneous............................................... 48,400
----------
Total.................................................. $4,000,000
==========
</TABLE>
- -------------------------
* All fees except the Securities and Exchange Commission and NASD filing fees
are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware ("DGCL") provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was illegal. A Delaware corporation may indemnify any persons who
are, or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such officer or director has actually and reasonably
incurred.
II-1
<PAGE> 217
Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The Restated Certificate of Incorporation contains a provision
eliminating, to the fullest extent permitted by the DGCL as it exists or may in
the future be amended, the liability of a director to the Company and its
stockholders for monetary damages for breaches of fiduciary or other duty as a
director. However, the DGCL does not currently allow such provision to limit the
liability of a director for: (i) any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of laws; (iii)
payment of dividends, stock purchases or redemptions that violate the DGCL; or
(iv) any transaction from which the director derived an improper personal
benefit. Such limitation of liability also does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Restated Certificate of Incorporation and the By-Laws also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify and hold harmless any director who
is or was made a party or is threatened to be made a party to or is involved in
any manner in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Company or its
subsidiaries, and any person serving at the request of the Company as an
officer, director, partner, member, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise and may indemnify any officer, employee or agent of the
Company; provided, however, that the Company will indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by the Restated
Certificate of Incorporation or By-Laws. In addition, the Company will pay the
expenses incurred by directors, and may pay the expenses incurred by other
persons that may be indemnified pursuant to the Restated Certificate and the
By-Laws, in defending any such proceeding in advance of its final disposition
upon receipt (unless the Company upon authorization of the Board of Directors
waives such requirement to the extent permitted by applicable law) of an
undertaking by or on behalf of such person to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
Company as authorized in the Restated Certificate of Incorporation or By-Laws or
otherwise. The Restated Certificate and the By-Laws also state that such
indemnification is not exclusive of any other rights of the indemnified party,
including rights under any indemnification agreements or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-2
<PAGE> 218
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.++
3.1 Form of Restated Certificate of Incorporation of the
Company.++
3.2 Form of Restated By-laws of the Company.++
4.1 Specimen certificate of common stock.++
4.2 Specimen certificate of Class B common stock.++
4.3 Form of certificate of designation of Series A Junior
Participating Preferred Stock.
5.1 Opinion of William G. von Glahn, Esq.++
10.1 Securities Purchase Agreement among Williams Communications
Group, Inc., The Williams Companies, Inc. and Telefonos de
Mexico, S.A. de C.V., dated May 25, 1999.+
10.2 Alliance Agreement Between Telefonos de Mexico, S.A. de C.V.
and Williams Communications, Inc., dated May 25, 1999.+
10.3 Securities Purchase Agreement dated as of May 24, 1999 by
and among Williams Communication Group, Inc., The Williams
Companies, Inc. and Intel Corporation.
10.4 Master Alliance Agreement Between Intel Internet Data
Services and Williams Communications, Inc., dated as of May
24, 1999.+*
10.5 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Metromedia Fiber Network Services, Inc. to
Williams Communications, Inc., dated May 21, 1999.+*
10.6 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Williams Communications, Inc. to Metromedia Fiber
Network Services, Inc., dated May 21, 1999.+*
10.7 Loan Agreement dated as of April 16, 1999 among Williams
Communications Group, Inc., Bank of America National Trust
and Savings Association, and the other financial
institutions party hereto, Nationsbanc Montgomery Securities
LLC, Chase Securities Inc., Bank of Montreal, and The Bank
of New York.+
10.8 Shareholders Agreement by and among Metrogas S.A., Williams
International Telecom (Chile) Limited, and Metrocom S.A.,
dated March 30, 1999 and Side Letter dated March 30, 1999.+*
10.9 Share Purchase Agreement by and Among Lightel, S.A.
Technologia de Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999.+
10.10 Master Alliance Agreement between SBC Communications Inc.
and Williams Communications, Inc. dated February 8, 1999.+*
10.11 Transport Services Agreement dated February 8, 1999, between
Southwestern Bell Communication Services, Inc. and Williams
Communications, Inc.+*
10.12 Securities Purchase Agreement dated February 8, 1999,
between SBC Communications Inc. and Williams Communications
Group, Inc.+
10.13 Second Amended and Restated Credit Agreement dated as of
July 23, 1997 among The Williams Companies, Inc., Northwest
Pipeline Corporation, Transcontinental Gas Pipeline
Corporation, Texas Gas Transmission Corporation, Williams
Pipeline Company, Williams Holdings of Delaware, Inc.,
WilTel Communications, LLC, and Amendment thereto dated as
of January 26, 1999.
</TABLE>
II-3
<PAGE> 219
<TABLE>
<C> <S>
10.14 Amended and Restated Lease for Bank of Oklahoma Tower, as of
January 1, 1999, by and between Williams Headquarters
Building Company and The Williams Companies, Inc.+
10.15 Lease as of January 1, 1999, for Williams Technology Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.16 Lease as of January 1, 1999, for Williams Resource Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.17 Wireless Fiber IRU Agreement by and between WinStar
Wireless, Inc. and Williams Communications, Inc., effective
as of December 17, 1998.
10.18 IRU Agreement between WinStar Wireless, Inc. and Williams
Communications, Inc., dated December 17, 1998 (long haul),
together with Clarification Agreement effective as of
December 17, 1998 and Side Agreement dated March 31, 1999.+*
10.19 UtiliCom Networks, Inc. Note and Warrant Purchase Agreement
dated December 15, 1998.
10.20 Consolidated IRU Agreement by and among IXC Carrier, Inc.,
Vyvx, Inc. and The WilTech Group, dated December 9, 1998 and
Amendment No. 4, dated December 22, 1998.+*
10.21 Stock Purchase Agreement for CNG Computer Networking Group
Inc. by and among The Sellers (1310038 Ontario Inc., George
Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary
White), WilTel Communications (Canada), Inc. and Williams
Communications Solutions, LLC, dated October 13, 1998.+*
10.22 Preferred Stock Purchase by and among UniDial Holdings, Inc.
and Williams Communications, Inc., dated October 2, 1998.+*
10.23 Amended and Restated Lease between State Street Bank & Trust
Co. of Connecticut, National Association, as Lessor, and
Williams Communications, Inc., as Lessee, as of September 2,
1998.
10.24 Amended and Restated Participation Agreement dated as of
September 2, 1998, among Williams Communications, Inc.;
State Street Bank & Trust Company of Conn., National
Association, as Trustee; Note Holders and Certificate
Holders; APA Purchasers; State Street Bank & Trust Co., as
Collateral Agent; and Citibank, N.A., as agent, with
Citibank, N.A. and Bank of Montreal as Co-Arrangers; Royal
Bank of Canada, as Documentation Agent; and Bank of America,
The Chase Manhattan Bank and Toronto Dominion, as Managing
Agents.+*
10.25 Capacity Purchase Agreement between Williams Communications,
Inc. and Intermedia Communications, Inc., dated January 5,
1998 and Amendment dated August 5, 1998.+*
10.26 Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and Williams Communications, Inc.,
dated July 1, 1998.+*
10.27 Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum Network
Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams
Holdings of Delaware Inc. and Williams International
Services Company, dated June 19, 1998.+
10.28 Carrier Services Agreement between Vyvx, Inc. and U S WEST
Communications, Inc., dated January 5, 1998, and Amendment
No. 1, dated June 14, 1999.+*
10.29 Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January 1,
1998.+*
</TABLE>
II-4
<PAGE> 220
<TABLE>
<C> <S>
10.30 Common Stock and Warrant Purchase Agreement by and among Concentric Network Corporation
and Williams Communications Group, Inc., dated July 25, 1997.+
10.31 Note and Warrant Purchase Agreement by and among Concentric Network Corporation and
Williams Communications Group, Inc., dated June 19, 1997.
10.32 Limited Liability Company Agreement of WilTel Communications, LLC, by and between Williams
Communication Group, Inc. and Northern Telecom, Inc., dated April 30, 1997.+*
10.33 Share Purchase Agreement for TTS Meridian Systems Inc. by and among Northern Telecom
Limited, WilTel Communications, LLC and 1228966 Ontario Inc., dated April 30, 1997.+*
10.34 Formation Agreement by and between Northern Telecom, Inc. and Williams Communications
Group, Inc., dated April 1, 1997.+*
10.35 Stock Purchase Agreement among ABC Industria e Comercio S.A.-ABC INCO, Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.+
10.36 Subscription and Shareholders Agreement among Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams International Telecom Limited, dated
January 21, 1997.+
10.37 Sublease Agreement as of June 1, 1996, by and between Transcontinental Gas Pipeline
Company and Williams Telecommunications Systems, Inc.+
10.38 System Use and Service Agreement between WilTel, Inc. and Vyvx, Inc. effective as of
January 1, 1994.+*
10.39 Form of administrative services agreement.+
10.40 Form of service agreement.+
10.41 Form of tax sharing agreement.+
10.42 Form of indemnification agreement.+
10.43 Form of rights agreement.+
10.44 Form of registration rights agreement.+
10.45 Form of separation agreement.
10.46 Call option agreement by and among Williams Holdings of Delaware, Inc., Williams
International Company, Williams International Telecom Limited, and Williams Communications
Group, Inc. dated May 27, 1999.+
10.47 Form of cross-license agreement.+
10.48 Form of technical, management and administrative services agreement.+
10.49 The Williams Companies, Inc. 1996 Stock Plan.+
10.50 The Williams Companies, Inc. Stock Plan for Nonofficer Employees.+
10.51 Williams Communications Stock Plan.+
10.52 Williams Communications Group, Inc. 1999 Stock Plan.
10.53 Williams Pension Plan.+
10.54 Solutions LLC Pension Plan.+
10.55 Williams Communications Change in Control Severance Plan.
10.56 Stock purchase agreement by and between Williams Communications, Inc. Conferencing
Acquisition Corporation and Genesys, S.A. dated as of June 30, 1999.++
10.57 Form of loan agreement and promissory note between Williams Communications, Inc. and The
Williams Companies, Inc.
</TABLE>
II-5
<PAGE> 221
<TABLE>
<C> <S>
10.58 Williams Communications, Inc. Senior Credit Facilities Fee Letter, dated June 2, 1999.
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.++
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of William G. von Glahn, Esq. (contained in opinion filed as Exhibit 5.1).
23.5 Consent of H. Brian Thompson.
23.6 Consent of Roy A. Wilkens.
24 Power of Attorney.+
24.1 Power of Attorney of Michael P. Johnson, Sr. and Scott E. Schubert.+
27.1 Financial Data Schedule -- Three Months Ended March 31, 1999.
27.2 Financial Data Schedule -- Three Months Ended March 31, 1998.
27.3 Restated Financial Data Schedule -- December 31, 1998.
27.4 Restated Financial Data Schedule -- December 31, 1997.
27.5 Restated Financial Data Schedule -- December 31, 1996.
</TABLE>
- -------------------------
+ Previously filed.
++ To be filed by amendment.
* Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which is currently being reviewed by the Securities
and Exchange Commission.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 222
(3) it will provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit delivery to each
purchaser.
II-7
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Tulsa, Oklahoma on the 12th day of July, 1999.
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/ WILLIAM G. von GLAHN
-------------------------------------
William G. von Glahn
Senior Vice President, Law
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ * Chief Executive Officer and July 12, 1999
------------------------------------------------ President (Principal Executive
Howard E. Janzen Officer)
/s/ * Chief Financial Officer (Principal July 12, 1999
------------------------------------------------ Accounting and Financial Officer)
Scott E. Schubert
/s/ * Director July 12, 1999
------------------------------------------------
Keith E. Bailey
/s/ * Director July 12, 1999
------------------------------------------------
John C. Bumgarner, Jr.
/s/ * Director July 12, 1999
------------------------------------------------
Brian E. O'Neill
/s/ * Director July 12, 1999
------------------------------------------------
James R. Herbster
/s/ * Director July 12, 1999
------------------------------------------------
Michael P. Johnson, Sr.
/s/ * Director July 12, 1999
------------------------------------------------
Steven J. Malcolm
/s/ * Director July 12, 1999
------------------------------------------------
Jack D. McCarthy
</TABLE>
* Pursuant to a power of attorney.
II-8
<PAGE> 224
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Williams Communications Group, Inc.
We have audited the consolidated financial statements of Williams
Communications Group, Inc. as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated April 7, 1999, except for the matters described in the third
paragraph of Note 10 and Note 17, as to which the date is July 7, 1999 (included
elsewhere in this Registration Statement). The financial statements of ATL-
Algar Telecom Leste S.A., (an entity in which the Company has a 30% interest, at
December 31, 1998), have been audited by other auditors whose report has been
furnished to us; insofar as our opinion on the consolidated financial statements
relates to data included for ATL-Algar Telecom Leste S.A., it is based solely on
their report. Our audits also included the financial statement schedule listed
in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
July 7, 1999
S-1
<PAGE> 225
WILLIAMS COMMUNICATIONS GROUP
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(b) BALANCE
--------- ---------- ----- ------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1998............................. 12,787 21,591 -- 10,802 23,576
1997............................. 4,950 7,837 7,799(c) 7,799 12,787
1996............................. 6,427 2,694 -- 4,171 4,950
</TABLE>
- ---------------
(a)Deducted from related assets.
(b)Represents balances written off, net of recoveries and reclassifications.
(c)Primarily relates to acquisitions of businesses.
S-2
<PAGE> 226
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.++
3.1 Form of Restated Certificate of Incorporation of the
Company.++
3.2 Form of Restated By-laws of the Company.++
4.1 Specimen certificate of common stock.++
4.2 Specimen certificate of Class B common stock.++
4.3 Form of certificate of designation of Series A Junior
Participating Preferred Stock.
5.1 Opinion of William G. von Glahn, Esq.++
10.1 Securities Purchase Agreement among Williams Communications
Group, Inc., The Williams Companies, Inc. and Telefonos de
Mexico, S.A. de C.V., dated May 25, 1999.+
10.2 Alliance Agreement Between Telefonos de Mexico, S.A. de C.V.
and Williams Communications, Inc., dated May 25, 1999.+
10.3 Securities Purchase Agreement dated as of May 24, 1999 by
and among Williams Communication Group, Inc., The Williams
Companies, Inc. and Intel Corporation.
10.4 Master Alliance Agreement Between Intel Internet Data
Services and Williams Communications, Inc., dated as of May
24, 1999.+*
10.5 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Metromedia Fiber Network Services, Inc. to
Williams Communications, Inc., dated May 21, 1999.+*
10.6 Memorandum of Understanding Regarding the Lease of Fiber
Strands by Williams Communications, Inc. to Metromedia Fiber
Network Services, Inc., dated May 21, 1999.+*
10.7 Loan Agreement dated as of April 16, 1999 among Williams
Communications Group, Inc., Bank of America National Trust
and Savings Association, and the other financial
institutions party hereto, Nationsbanc Montgomery Securities
LLC, Chase Securities Inc., Bank of Montreal, and The Bank
of New York.+
10.8 Shareholders Agreement by and among Metrogas S.A., Williams
International Telecom (Chile) Limited, and Metrocom S.A.,
dated March 30, 1999 and Side Letter dated March 30, 1999.+*
10.9 Share Purchase Agreement by and Among Lightel, S.A.
Technologia de Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999.+
10.10 Master Alliance Agreement between SBC Communications Inc.
and Williams Communications, Inc. dated February 8, 1999.+*
10.11 Transport Services Agreement dated February 8, 1999, between
Southwestern Bell Communication Services, Inc. and Williams
Communications, Inc.+*
10.12 Securities Purchase Agreement dated February 8, 1999,
between SBC Communications Inc. and Williams Communications
Group, Inc.+
10.13 Second Amended and Restated Credit Agreement dated as of
July 23, 1997 among The Williams Companies, Inc., Northwest
Pipeline Corporation, Transcontinental Gas Pipeline
Corporation, Texas Gas Transmission Corporation, Williams
Pipeline Company, Williams Holdings of Delaware, Inc.,
WilTel Communications, LLC, and Amendment thereto dated as
of January 26, 1999.
</TABLE>
<PAGE> 227
<TABLE>
<C> <S>
10.14 Amended and Restated Lease for Bank of Oklahoma Tower, as of
January 1, 1999, by and between Williams Headquarters
Building Company and The Williams Companies, Inc.+
10.15 Lease as of January 1, 1999, for Williams Technology Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.16 Lease as of January 1, 1999, for Williams Resource Center,
by and between Williams Headquarters Building Company and
Williams Communications Group, Inc.+
10.17 Wireless Fiber IRU Agreement by and between WinStar
Wireless, Inc. and Williams Communications, Inc., effective
as of December 17, 1998.
10.18 IRU Agreement between WinStar Wireless, Inc. and Williams
Communications, Inc., dated December 17, 1998 (long haul),
together with Clarification Agreement effective as of
December 17, 1998 and Side Agreement dated March 31, 1999.+*
10.19 UtiliCom Networks, Inc. Note and Warrant Purchase Agreement
dated December 15, 1998.
10.20 Consolidated IRU Agreement by and among IXC Carrier, Inc.,
Vyvx, Inc. and The WilTech Group, dated December 9, 1998 and
Amendment No. 4, dated December 22, 1998.+*
10.21 Stock Purchase Agreement for CNG Computer Networking Group
Inc. by and among The Sellers (1310038 Ontario Inc., George
Johnston, Hayden Marcus, The H. Marcus Family Trust and Gary
White), WilTel Communications (Canada), Inc. and Williams
Communications Solutions, LLC, dated October 13, 1998.+*
10.22 Preferred Stock Purchase by and among UniDial Holdings, Inc.
and Williams Communications, Inc., dated October 2, 1998.+*
10.23 Amended and Restated Lease between State Street Bank & Trust
Co. of Connecticut, National Association, as Lessor, and
Williams Communications, Inc., as Lessee, as of September 2,
1998.
10.24 Amended and Restated Participation Agreement dated as of
September 2, 1998, among Williams Communications, Inc.;
State Street Bank & Trust Company of Conn., National
Association, as Trustee; Note Holders and Certificate
Holders; APA Purchasers; State Street Bank & Trust Co., as
Collateral Agent; and Citibank, N.A., as agent, with
Citibank, N.A. and Bank of Montreal as Co-Arrangers; Royal
Bank of Canada, as Documentation Agent; and Bank of America,
The Chase Manhattan Bank and Toronto Dominion, as Managing
Agents.+*
10.25 Capacity Purchase Agreement between Williams Communications,
Inc. and Intermedia Communications, Inc., dated January 5,
1998 and Amendment dated August 5, 1998.+*
10.26 Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and Williams Communications, Inc.,
dated July 1, 1998.+*
10.27 Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum Network
Systems Limited, CitiPower Pty, Energy Australia, South East
Queensland Electricity Corporation Limited, Williams
Holdings of Delaware Inc. and Williams International
Services Company, dated June 19, 1998.+
10.28 Carrier Services Agreement between Vyvx, Inc. and U S WEST
Communications, Inc., dated January 5, 1998, and Amendment
No. 1, dated June 14, 1999.+*
10.29 Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January 1,
1998.+*
</TABLE>
<PAGE> 228
<TABLE>
<C> <S>
10.30 Common Stock and Warrant Purchase Agreement by and among Concentric Network Corporation
and Williams Communications Group, Inc., dated July 25, 1997.+
10.31 Note and Warrant Purchase Agreement by and among Concentric Network Corporation and
Williams Communications Group, Inc., dated June 19, 1997.
10.32 Limited Liability Company Agreement of WilTel Communications, LLC, by and between Williams
Communication Group, Inc. and Northern Telecom, Inc., dated April 30, 1997.+*
10.33 Share Purchase Agreement for TTS Meridian Systems Inc. by and among Northern Telecom
Limited, WilTel Communications, LLC and 1228966 Ontario Inc., dated April 30, 1997.+*
10.34 Formation Agreement by and between Northern Telecom, Inc. and Williams Communications
Group, Inc., dated April 1, 1997.+*
10.35 Stock Purchase Agreement among ABC Industria e Comercio S.A.-ABC INCO, Lightel S.A.
Tecnologia da Informacao, Algar S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997.+
10.36 Subscription and Shareholders Agreement among Lightel S.A. Tecnologia da Informacao, Algar
S.A.-Empreendimentos e Participacoes and Williams International Telecom Limited, dated
January 21, 1997.+
10.37 Sublease Agreement as of June 1, 1996, by and between Transcontinental Gas Pipeline
Company and Williams Telecommunications Systems, Inc.+
10.38 System Use and Service Agreement between WilTel, Inc. and Vyvx, Inc. effective as of
January 1, 1994.+*
10.39 Form of administrative services agreement.+
10.40 Form of service agreement.+
10.41 Form of tax sharing agreement.+
10.42 Form of indemnification agreement.+
10.43 Form of rights agreement.+
10.44 Form of registration rights agreement.+
10.45 Form of separation agreement.
10.46 Call option agreement by and among Williams Holdings of Delaware, Inc., Williams
International Company, Williams International Telecom Limited, and Williams Communications
Group, Inc. dated May 27, 1999.+
10.47 Form of cross-license agreement.+
10.48 Form of technical, management and administrative services agreement.+
10.49 The Williams Companies, Inc. 1996 Stock Plan.+
10.50 The Williams Companies, Inc. Stock Plan for Nonofficer Employees.+
10.51 Williams Communications Stock Plan.+
10.52 Williams Communications Group, Inc. 1999 Stock Plan.
10.53 Williams Pension Plan.+
10.54 Solutions LLC Pension Plan.+
10.55 Williams Communications Change in Control Severance Plan.
10.56 Stock purchase agreement by and between Williams Communications, Inc. Conferencing
Acquisition Corporation and Genesys, S.A. dated as of June 30, 1999.++
10.57 Form of loan agreement and promissory note between Williams Communications, Inc. and The
Williams Companies, Inc.
</TABLE>
<PAGE> 229
<TABLE>
.58 10 Williams Communications, Inc. Senior Credit Facilities Fee Letter, dated
June 2, 1999.
<C> <S>
12.1 Statement re: Computation of Ratios.
21 List of Subsidiaries.++
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen S/C.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of William G. von Glahn, Esq. (contained in opinion filed as
Exhibit 5.1).
23.5 Consent of H. Brian Thompson.
23.6 Consent of Roy A. Wilkens.
24 Power of Attorney.+
24.1 Power of Attorney of Michael P. Johnson, Sr. and Scott E. Schubert.+
27.1 Financial Data Schedule -- Three Months Ended March 31, 1999.
27.2 Financial Data Schedule -- Three Months Ended March 31, 1998.
27.3 Restated Financial Data Schedule -- December 31, 1998.
27.4 Restated Financial Data Schedule -- December 31, 1997.
27.5 Restated Financial Data Schedule -- December 31, 1996.
</TABLE>
- -------------------------
+ Previously filed.
++ To be filed by amendment.
* Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which is currently being reviewed by the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 4.3
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
WILLIAMS COMMUNICATIONS GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, [ ______________________ , Chairman of the Board, and
_________________ , Secretary, of __________ ,] [the undersigned officers of]
Williams Communications Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors on ________________ , 199_ , adopted the following
resolution creating a series of ______________ shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Amended
and Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be _________________.
<PAGE> 2
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the ______________ day of __________ , __________ , __________ and ____________
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $____ or (b) subject to the provision for ad-
justment hereinafter set forth, 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by re classification or otherwise), declared on the Class A Common Stock,
par value $0.01 per share or Class B Common Stock, par value $0.01 per share, of
the Corporation (the "Common Stock"), since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after _______________, 1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
2
<PAGE> 3
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in Paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $____ per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares
of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
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<PAGE> 4
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal
to six (6) quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein called a
"default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to
elect two (2) directors.
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<PAGE> 5
(ii) During any default period, such voting right of the holders
of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii)
of this Section 3(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that neither
such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the
authorized number of directors shall be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise
by the holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting
right initially during an existing default period, they shall have
the right, voting as a class, to elect directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to
two (2) directors or, if such right is exercised at an annual meeting,
to elect two (2) directors. If the number which may be so elected at
any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such
increase in the number of directors as shall be necessary to permit
the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect directors in
any default period and during the continuance of such period, the
number of directors shall not be increased or decreased except by vote
of the holders of Preferred Stock as herein provided or pursuant to
the rights of any equity securities ranking senior to or pari passu
with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect directors, the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than ten percent
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<PAGE> 6
(10%) of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his last ad
dress as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days and not
later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request,
such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Preferred Stock out standing.
Notwithstanding the provisions of this Paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of
the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors until
the holders of Preferred Stock shall have exercised their right to
elect two (2) directors voting as a class, after the exercise of which
right (x) the directors so elected by the holders of Preferred Stock
shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in Paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining directors thereto fore elected by the
holders of the class of stock which elected the director whose office
shall have become vacant. References in this Paragraph (C) to
directors elected by the holders
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<PAGE> 7
of a particular class of stock shall include directors elected by
such directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
directors shall be such number as may be provided for in the amended
and restated certificate of incorporation or by-laws irrespective of
any increase made pursuant to the provisions of Paragraph (C)(ii) of
this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the amended and
restated certificate of incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses (y) and
(z) in the preceding sentence may be filled by a majority of the
remaining directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior
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<PAGE> 8
(either as to dividends or upon liquidation, dissolution or winding
up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, [or any shares of
stock ranking on a parity with the Series A Junior Participating
Preferred Stock,] except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise
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<PAGE> 9
acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $100 per share of Series A Participating
Preferred Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount of
the Series A Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately
adjusted as set forth in subparagraph (C) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and
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<PAGE> 10
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock
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payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide other wise.
Section 10. Amendment. At any time when any shares of Series A Junior
Participating Preferred Stock are outstanding, neither the Amended and Restated
Certificate of Incorporation of the Corporation nor this Certificate of
Designation shall be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior Partici-
pating Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of [a majority] or more of the outstanding shares of Series
A Junior Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
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IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this _______
day of __ , __________ 1999.
Chairman of the Board
Attest:
- --------------------------------
Secretary
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<PAGE> 1
EXHIBIT 10.3
SECURITIES PURCHASE AGREEMENT
dated as of May __, 1999
by and among
WILLIAMS COMMUNICATIONS GROUP, INC.
(the "Company"),
THE WILLIAMS COMPANIES, INC.
("TWC")
and
INTEL CORPORATION
(the "Investor")
<PAGE> 2
Confidential & Proprietary
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINED TERMS 1
ARTICLE II
PURCHASE AND SALE TERMS; CLOSING 6
2.1 Purchase and Sale 6
2.2 Payment 6
2.3 Closing 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 7
3.1 Delivery of Underwriting Agreement 7
3.2 Delivery of Articles 7
3.3 Underwriting Agreement Representations and Warranties 7
3.4 Power and Authority 7
3.5 Non-Contravention 7
3.6 Valid Issuance 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR 8
4.1 Existence 8
4.2 Power and Authority 8
4.3 Purchase for Investment 8
4.4 Non-Contravention 9
4.5 Financial Matters 9
4.6 Restricted Securities 9
4.7 Further Limitations on Disposition 9
ARTICLE V
COVENANTS OF THE COMPANY AND THE INVESTOR 10
5.1 Covenants of the Company Only 10
5.2 Further Assurances 10
5.3 Filings and Consents 10
5.4 Covenant to Satisfy Conditions 11
5.5 Notification of Change in Control Event 11
5.6 Information Rights 11
ARTICLE VI
CLOSING CONDITIONS 12
6.1 Conditions of Investor's Obligations at Closing 12
</TABLE>
<PAGE> 3
Confidential & Proprietary
<TABLE>
<S> <C>
6.2 Conditions of the Company's Obligations at Closing 12
6.3 Conditions to Each Party's Obligation 13
ARTICLE VII
TRANSFER RESTRICTIONS 13
7.1 Restrictions on Transfer; the 33 Act 13
ARTICLE VIII
VOTING RIGHTS 15
8.1 Voting Rights 15
ARTICLE IX
TERMINATION 15
9.1 Termination 15
9.2 Effect of Termination 16
ARTICLE X
INDEMNIFICATION 16
10.1 Indemnification 16
10.2 Terms of Indemnification 16
ARTICLE XI
REGISTRATION RIGHTS 17
11.1 Registration Rights 17
ARTICLE XII
STANDSTILL 23
12.1 Standstill Provision 23
ARTICLE XIII
MISCELLANEOUS 24
13.1 Governing Law 24
13.2 Remedies Cumulative 24
13.3 Brokerage 24
13.4 Severability 25
13.5 Notices 25
13.6 No Waiver 25
13.7 Amendments and Waivers 25
13.8 Rights of the Investor 25
13.9 Survival 25
13.10 Entire Understanding 26
13.11 Expenses 26
13.12 Counterparts 26
13.13 Assignment; No Third-Party Beneficiaries 26
</TABLE>
ii
<PAGE> 4
Confidential & Proprietary
<TABLE>
<S> <C>
13.14 Confidentiality/Publicity 27
13.15 Titles and Subtitles 27
13.16 Aggregation of Stock 27
</TABLE>
EXHIBITS
Exhibit 1.1 Form of Articles
Exhibit 1.2 Form of Underwriting Agreement
Exhibit 13.5 Notices
iii
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of May __, 1999, among Williams
Communications Group, Inc., a Delaware corporation (the "Company"), The Williams
Companies, Inc., a Delaware corporation ("TWC"), and Intel Corporation, a
Delaware corporation ("Intel" and together with any assignee thereof pursuant to
Section 13.13 hereof, the "Investor").
PREAMBLE
The Company wishes to obtain equity financing. The Investor is willing,
on the terms contained in this Agreement, to purchase Class A common stock, par
value $0.01 per share (the "Class A Common Stock"), of the Company having the
characteristics set forth in the Restated Articles of Incorporation of the
Company (the "Articles"). The Company and Intel or certain of their Affiliates
(as defined below) are entering into other agreements, which include that
certain Master Alliance Agreement ("Alliance Agreement"), under which the
parties are setting forth their agreement to work together with Intel building
Internet data center facilities, management and hosting platform systems and
Williams providing highly reliable network facilities. Certain capitalized terms
are defined in Article I. Exhibits are incorporated by reference into this
Agreement as though such exhibits were set forth at the point of such reference.
ARTICLE I
DEFINED TERMS
The following terms, when used in this Agreement, have the following
meanings, unless the context otherwise indicates:
"33 Act" means the Securities Act of 1933, as amended, or any similar
federal law then in force.
"34 Act" means the Securities Exchange Act of 1934, as amended, or any
similar federal law then in force.
"Affiliate" has the meaning ascribed to it in Rule 12b-2 under the 34
Act. Notwithstanding the foregoing, unless expressly provided to the contrary
herein, the term Affiliate shall exclude officers, directors and any employee
benefit plan or pension plan of a Person.
"Alliance Agreement" shall have the meaning set forth in the preamble
to this Agreement.
<PAGE> 6
Confidential & Proprietary
"Articles" shall have the meaning set forth in the preamble to this
Agreement. A draft of the Articles is attached as Exhibit 1.1.
"Beneficially Own" means having the right to vote or dispose of, or
"beneficially own" as determined pursuant to Rule 13d-3 under the 34 Act as in
effect on the date of this Agreement, including pursuant to any agreement,
arrangement or understanding.
"Board of Directors" means the board of directors of the Company.
"Business Day" means a day other than a Saturday or Sunday or a day on
which banking institutions are authorized or required by law or executive order
to remain closed in New York, New York, Tulsa, Oklahoma or San Francisco,
California.
"Change in Control Event" shall be deemed to have occurred with respect
to the Investor or the Company if (i) there shall be consummated (x) any
consolidation or merger of the Investor or the Company, as the case may be, in
which the Investor or the Company, as the case may be, is not the continuing or
surviving corporation or pursuant to which shares of the common stock of the
Investor or the Company, as the case may be, would be converted into cash,
securities or other property (provided, that a merger of the Investor or the
Company, as the case may be, in which the holders of such common stock
immediately prior to the merger hold at least 70% of the common stock of the
surviving corporation immediately after the merger shall not constitute a Change
in Control Event), or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Investor or the Company, as the case may be, or (ii) the
stockholders of the Investor or the Company, as the case may be, approved any
plan or proposal for the liquidation or dissolution of the Investor or the
Company, as the case may be, or (iii) any Person (other than TWC or any
Subsidiary of TWC in the case of the Company) shall Beneficially Own 30% or more
of the outstanding common stock of the Company or the Investor, as the case may
be (or, in the case of the Company, 50% of the outstanding Common Stock if and
so long as TWC Beneficially Owns 30% of more of the outstanding Common Stock of
the Company), or (iv) during any period of two consecutive years, individuals
who at the beginning of such period constitute the entire board of directors of
the Investor or the Company, as the case may be, shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by such company's stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"Claims" shall have the meaning set forth in Section 10.1(a) to this
Agreement.
"Class A Common Stock" shall mean the Class A common stock, par value
$0.01 per share, of the Company and any Common Stock of the Company received in
exchange for the Class A Common Stock.
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Confidential & Proprietary
"Class B Common Stock" shall mean the Class B common stock, par value
$0.01 per share, of the Company.
"Closing" and "Closing Date" mean the consummation of the Company's
sale and the Investor's purchase of Class A Common Stock pursuant to this
Agreement, and the date or dates on which the same occurs or occurred,
respectively.
"Code" means the Internal Revenue Code of 1986, as amended, or any
similar federal law then in force.
"Common Stock" shall mean the Class A Common Stock and the Class B
Common Stock and any other series of common stock of the Company hereafter
issued. The term "Common Stock" shall include, except as otherwise provided
herein, any and all shares of common stock or other securities of the Company or
any successor or assign of the Company (whether by merger, consolidation, sale
of assets or otherwise), which may be issued in respect of, in exchange for, or
in substitution for any shares of Common Stock, by reason of any stock dividend,
split, reverse split, combination, recapitalization, reclassification, merger,
consolidation, partial or complete liquidation, sale of assets, spin-off,
distribution to stockholders or combination of the shares of Common Stock or any
other change in the Company's capital structure, in order to preserve fairly and
equitably as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
"Company Control Person" shall have the meaning set forth in Section
11.1(f)(ii) to this Agreement.
"Control Person" shall have the meaning set forth in Section 11.1(f)(i)
to this Agreement.
"Employee Benefit Plan" means any plan regulated under ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time.
"Form S-3" means such form under the 33 Act as in effect on the date
hereof or any successor registration form under the 33 Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the Federal Communications
Commission (or any successor thereto) and each applicable public utilities
commission).
3
<PAGE> 8
Confidential & Proprietary
"Hedging Transactions" means engaging in short sales and the purchase
and sale of puts and calls and other derivative securities, so long as Intel
retains Beneficial Ownership of the underlying shares and any and all such
transactions are made in accordance with all applicable law.
"HSR Act" shall have the meaning set forth in Section 5.3(a) to this
Agreement.
"IPO" means the initial public offering of the Company pursuant to a
registration statement filed by the Company under the 33 Act covering an
offering of at least $500 million of Class A Common Stock to the public.
"IPO Price" means the per share offering price for Class A Common Stock
stated on the face of the final prospectus relating to the IPO.
"Net IPO Price" means the IPO Price less any discounts or commissions
per share from the IPO Price to the underwriter or underwriters.
"Plan" means an employee benefit plan, as defined in Section 3(3) of
ERISA, which the Company maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed by the Company.
"Permitted Transfer Date" shall have the meaning set forth in Section
7.1(a) to this Agreement.
"Person" means any individual, corporation, partnership, limited
liability company or partnership, joint venture, association, governmental
entity, or any other entity.
"Potential Change in Control Event" means any one of the following
events: (a) the commencement of a tender offer or exchange offer (as such terms
are defined in the rules and regulations under the 34 Act) by any Person that
would, if consummated, constitute a Change in Control Event involving the
Company; (b) the solicitation of proxies by any Person for the purpose of
effecting a Change in Control Event involving the Company; (c) the disclosure by
the Company of any material non-public information to any Person for the purpose
of assisting such Person in evaluating whether to effect a Change in Control
Event involving the Company; (d) the commencement of substantive discussions or
negotiations (involving more than the Company responding to inquiries) between
the Company and any Person contemplating a Change in Control Event involving the
Company; or (e) the agreement by the Company, whether or not in writing, to
facilitate a Change in Control Event involving the Company. For purposes of the
above, in no event shall the term "Person" include the Investor or any of its
Affiliates.
"Purchase Price" shall have the meaning set forth in Section 2.1(c) to
this Agreement.
"Registrable Securities" shall mean: (a) all the shares of Class A
Common Stock issued or issuable under this Agreement and (b) any shares of
Common Stock issued as (or issuable upon
4
<PAGE> 9
Confidential & Proprietary
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, any such shares of Class A Common Stock described in
clause (a) of this definition. Notwithstanding the foregoing, "Registrable
Securities" shall exclude any otherwise registrable securities sold by a Person
in a transaction in which rights under Article XI hereof are not assigned in
accordance with this Agreement or any otherwise registrable securities sold in a
public offering, whether sold pursuant to Rule 144 promulgated under the 33 Act,
in a registered offering, or otherwise.
"Restricted Security" shall have the meaning set forth in Section
7.1(b) to this Agreement.
"SEC" means the Securities and Exchange Commission.
"Selling Stockholder(s)" shall mean any person owning of record
Registrable Securities or any permitted assignee of record of such Registrable
Securities to whom rights under Article XI hereof have been duly assigned in
accordance with this Agreement.
"Standstill Percentage" shall have the meaning set forth in Section
12.1 of this Agreement.
"Subsidiary" or "Subsidiaries" of any Person means any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person.
"Super Voting Rights" shall have the meaning set forth in Section 8.1
to this Agreement.
"Third Party" means, with respect to the Company or the Investor, any
Person other than the Company's or the Investor's Affiliates, respectively;
provided further, that the Transfer to any such Person is in compliance with all
applicable federal, state and foreign securities laws.
"Transfer" means any direct or indirect sale, assignment, mortgage,
transfer, pledge, gift, hypothecation or other disposition of or transfer of
Common Stock, but excludes Hedging Transactions.
"TWC" means The Williams Companies, Inc., a Delaware corporation.
"Underwriting Agreement" means the underwriting agreement among the
Company and Lehman Brothers Inc., Salomon Smith Barney and certain other
underwriters to be named therein, in connection with the IPO. A draft of the
Underwriting Agreement is attached as Exhibit 1.2.
"Volume-Weighted Average Trading Price" shall mean, for any day on
which the New York Stock Exchange is open for trading, an amount equal to (a)
the cumulative sum, for each
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trade of Class A Common Stock (or other class or series of capital stock) during
such trading day on the New York Stock Exchange (or, if such security is not
listed on the New York Stock Exchange, such other principal exchange or
over-the-counter market on which such security is listed), of the product of:
(i) the sale price times (ii) the number of shares of Class A Common Stock (or
such other class or series of capital stock) sold at such price, divided by (b)
the total number of shares of Class A Common Stock (or such other class or
series of capital stock) so traded during the trading day.
Additional defined terms are found in the body of the following text.
The masculine form of words includes the feminine and the neuter and
vice versa, and, unless the context otherwise requires, the singular form of
words includes the plural and vice versa. The words "herein," "hereof,"
"hereunder," and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular section or subsection.
ARTICLE II
PURCHASE AND SALE TERMS; CLOSING
2.1 Purchase and Sale.
(a) Before the Closing Date, the Company will have adopted and
filed the Articles with the Delaware Secretary of State.
(b) Subject to the terms and conditions of this Agreement, at
the Closing, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, the number of shares of Class A Common Stock
(rounded up to the next whole share) equal to Two Hundred Million Dollars
($200,000,000) divided by the Net IPO Price.
(c) The aggregate purchase price (the "Purchase Price") for
the shares of Class A Common Stock to be purchased by the Investor shall be Two
Hundred Million Dollars ($200,000,000).
2.2 Payment. At the Closing, the Company shall deliver to the Investor
a certificate (registered in the name of the Investor) representing the
appropriate number of shares of Class A Common Stock which the Investor is
purchasing against delivery to the Company by the Investor by wire transfer in
immediately available funds in U.S. dollars in the amount of the Purchase Price
therefor payable to the Company's order.
2.3 Closing. The purchase and sale of the Class A Common Stock to take
place at the Closing shall be held at the offices of Davis, Polk & Wardwell, New
York, New York, or such other place as the parties may agree. The Closing shall
occur on the date of and simultaneously with, or (at the Company's option
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with at least 24 hours' prior written notice to Intel) with two Business Days
after the consummation of the transactions contemplated by the Underwriting
Agreement relating to the IPO (the "Closing Date"). The Closing shall be
conditioned upon the closing of the transactions contemplated by the
Underwriting Agreement relating to the IPO.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Delivery of Underwriting Agreement. The Company has delivered to
the Investor a substantially completed draft Underwriting Agreement in the form
set forth in Exhibit 1.2.
3.2 Delivery of Articles. The Company has delivered to the Investor a
substantially completed draft of the Articles in the form set forth in Exhibit
1.1.
3.3 Underwriting Agreement Representations and Warranties. In
connection with the sale of the Class A Common Stock to the Investor, the
Company will hereby be deemed to make each of the representations and warranties
to, and agreements with, the Investor that are made for the benefit of the
underwriters as set forth in the Underwriting Agreement.
3.4 Power and Authority. The Company has the requisite corporate power
and authority and has taken all required action necessary to authorize the
execution and delivery by it of this Agreement and all other documents or
instruments required by this Agreement, and to carry out the terms of this
Agreement and of all such other documents or instruments. This Agreement has
been duly executed and delivered by the Company and (assuming the due
authorization, execution and delivery hereof by the Investor) constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
3.5 Non-Contravention. The execution, delivery and performance of this
Agreement by the Company and the consummation of any of the transactions
contemplated hereby by the Company will not (a) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to any
agreement, instrument, franchise, license or permit to which the Company is a
party or by which any of its properties or assets may be bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body applicable to the
Company or any of its properties or assets, other than such breaches, defaults
or violations that are not reasonably expected to impair the ability of the
Company to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby by the Company do not and
will not violate or conflict with any provision of the Articles or by-laws of
the Company, as currently in effect. Except for filings under the HSR Act and
with respect to the IPO, no
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consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any government agency or body
applicable to the Company is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
3.6 Valid Issuance. The Class A Common Stock, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
provided for herein, will be duly and validly issued, fully paid and
nonassessable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company, as of the date
hereof and as of the date of the Closing, that:
4.1 Existence. The Investor is a company duly organized, validly
existing and current in payment of all taxes properly payable pursuant to the
laws of the jurisdiction of its organization. The Investor has the requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as presently conducted.
4.2 Power and Authority. The Investor has the requisite corporate power
and authority and has taken all required action necessary to authorize the
execution and delivery by it of this Agreement and all other documents or
instruments required by this Agreement, and to carry out the terms of this
Agreement and of all such other documents or instruments. This Agreement has
been duly executed and delivered by the Investor and (assuming the due
authorization, execution and delivery hereof by the Company and the other
parties thereto other than the Investor) constitutes the valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms.
4.3 Purchase for Investment. The Investor is purchasing its shares of
Class A Common Stock for investment, for its own account (not as a nominee or
agent) and not for the account of any Employee Benefit Plan (or, if being
acquired for the account of any such Plan, such acquisition does not involve a
nonexempt prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code) and not with a view to the resale or distribution of
any part thereof, except for transfers permitted hereunder, and the Investor has
no present intention of selling, granting any participation in or otherwise
distributing the same. By executing this Agreement, the Investor further
represents that it does not have any contract, undertaking, agreement or
arrangement with any Person to sell, Transfer or grant participation to such
Person or to any third person with respect to the Class A Common Stock.
4.4 Non-Contravention. The execution, delivery and performance of this
Agreement by the Investor and the consummation of any of the transactions
contemplated hereby by the
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Investor will not (a) conflict with or result in a breach of any of the terms
and provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Investor pursuant to any agreement, instrument, franchise, license
or permit to which the Investor is a party or by which any of its properties or
assets may be bound or (b) violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body applicable to the Investor or any of its properties or
assets, other than such breaches, defaults or violations that are not reasonably
expected to impair the ability of the Investor to consummate the transactions
contemplated by this Agreement. The execution, delivery and performance of this
Agreement by the Investor and the consummation of the transactions contemplated
hereby by the Investor do not and will not violate or conflict with any
provision of the organizational documents of the Investor, as currently in
effect. Except for filings under the HSR Act, no consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any government agency or body applicable to the Investor is
required for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
4.5 Financial Matters. The Investor, either alone or with its financial
advisor, has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of the investment to be
made by it hereunder. The Investor represents that it is an "accredited
investor" as that term is defined in Regulation D promulgated under the 33 Act.
4.6 Restricted Securities. The Investor understands that its shares of
Class A Common Stock must be held indefinitely unless they are registered under
the 33 Act or an exemption from such registration becomes available, and that
its shares of Class A Common Stock may only be Transferred as provided in
Article VII of this Agreement. The Investor acknowledges and agrees to abide by
the restrictions on transfer set forth in Article VII of this Agreement. The
Investor understands that the shares of Class A Common Stock it is purchasing
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 33 Act only in
certain limited circumstances. In this connection, the Investor represents that
it is familiar with Rule 144 promulgated under the 33 Act, as presently in
effect, and understands the resale limitations imposed thereby and by the 33
Act.
4.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees that, in connection
with any proposed Transfer involving a private sale, the Investor shall notify
the Company of the proposed disposition and shall furnish the Company with a
detailed statement of the circumstances surrounding the proposed disposition
and, if reasonably requested by the Company, the Investor shall have furnished
the Company with an opinion of counsel reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the 33
Act.
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ARTICLE V
COVENANTS OF THE COMPANY AND THE INVESTOR
5.1 Covenants of the Company Only.
(a) The Company will hereby be deemed to covenant and agree
with the Investor and to its benefit to comply with all agreements made for the
benefit of the underwriters as set forth in the Underwriting Agreement.
(b) The Company shall promptly notify the Investor of any
material developments in connection with the IPO, and provide copies of any and
all filings, notices and other communications with the SEC relating thereto,
including copies of the registration statement filed with the SEC, and with any
Governmental Authority relating to the filings under the HSR Act as described in
Section 5.3(a) below. The Company shall also provide to the Investor any such
filings, notices and other communications sufficiently in advance of their being
filed or provided to the SEC or such Governmental Authorities as described above
so as to permit the Investor sufficient opportunity to review and comment on
such drafts.
(c) The Company shall provide to the Investor copies of any
notices, correspondence or other written communication from the SEC relating to
the IPO or from any Governmental Authority relating to the filings under the HSR
Act as described in Section 5.3(a) below promptly following receipt thereof.
5.2 Further Assurances. Subject to the terms and conditions provided
herein, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done as promptly as
practicable, all things necessary, proper or advisable under applicable laws and
regulations or otherwise to consummate and make effective the transactions
contemplated by this Agreement. The Company, at its expense, will promptly
execute and deliver to the Investor, and the Investor will, at its expense,
promptly execute and deliver to the Company, upon the other's reasonable
request, all such other and further documents, agreements and instruments in
compliance with or pursuant to its covenants and agreements herein, and will
make any recordings, file any notices, and obtain any consents as may be
necessary or appropriate in connection therewith, including without limitation,
applications under the HSR Act.
5.3 Filings and Consents.
(a) As soon as practicable after execution and delivery of
this Agreement, the Investor and the Company shall make all filings required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), relating to the transactions contemplated hereby. In addition, the
Investor and the Company will each promptly furnish all information as may be
required by the Federal Trade Commission and the Department of Justice under the
HSR Act in order for the requisite approvals for the purchase and sale of the
Class A
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Common Stock, and the transactions contemplated hereby, to be obtained or any
applicable waiting periods to expire. Each of the parties hereto will cooperate
with each other with respect to obtaining, as promptly as practicable, all
necessary consents, approvals, authorizations and agreements of, and the giving
of all notices and making of all other filings with, any third parties,
including Governmental Authorities, necessary to authorize, approve or permit
the consummation of the transactions contemplated hereby.
(b) The Investor and the Company will provide such information
and communications to the Persons requiring such approvals, authorizations and
consents as reasonably required by such Person.
5.4 Covenant to Satisfy Conditions. Each party agrees to use all
reasonable efforts to insure that the conditions to the other party's
obligations hereunder set forth in Article VI, insofar as such matters are
within the control of such party, are satisfied. The Investor acknowledges
receipt of drafts of the Underwriting Agreement and Articles (attached as
exhibits hereto) and is satisfied with the content thereof.
5.5 Notification of Change in Control Event. Each party shall promptly
notify the other party of any Change in Control Event affecting the Company or
the Investor, as the case may be, and the Company shall promptly notify the
Investor of a Potential Change in Control Event of which it becomes actually
aware.
5.6 Information Rights. The Company covenants and agrees that,
commencing on the Closing and continuing for so long as the Investor owns at
least 50% of the shares initially purchased hereunder (as adjusted for stock
splits, stock dividends, and similar events), the Company shall:
(a) Annual Reports. Furnish to the Investor promptly following
the filing of such report with the SEC a copy of the Company's Annual Report on
Form 10-K for each fiscal year. In the event the Company shall no longer be
required to file Annual Reports on Form 10-K, the Company shall, within ninety
(90) days following the end of each respective fiscal year, deliver to the
Investor a copy of a consolidated balance sheet as of the end of such fiscal
year, a consolidated statement of income and a consolidated statement of cash
flows of the Company and its subsidiaries for such year, setting forth in each
case in comparative form the figures from the Company's previous fiscal year,
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants.
(b) Quarterly Reports. Furnish to the Investor promptly
following the filing of such report with the SEC, a copy of each of the
Company's Quarterly Reports on Form 10-Q. In the event the Company shall no
longer be required to file Quarterly Reports on Form 10-Q, the Company shall,
within forty-five (45) days following the end of each of the first three (3)
fiscal quarters of each fiscal year, deliver to the Investor a copy of a
consolidated balance sheet as of the end of the respective fiscal quarter,
consolidated statements of income and consolidated
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statements of cash flows of the Company and its subsidiaries for the respective
fiscal quarter and for the year to-date, setting forth in each case in
comparative form the figures from the comparable periods in the Company's
immediately preceding fiscal year, all prepared in accordance with generally
accepted accounting principles and practices, but all of which may be unaudited.
(c) Other SEC Filings. Furnish to the Investor promptly
following the filing of such documents with the SEC, copies of each proxy
statement and Report on Form 8-K filed with the SEC on a non-confidential basis.
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions of Investor's Obligations at Closing. The Investor's
obligation to purchase and pay for the Class A Common Stock to be purchased by
it hereunder is subject to satisfaction of the following conditions:
(a) Underwriting Agreement. (i) the Investor's determination
that there has not been any material revision to the Underwriting Agreement that
is adverse to the Investor as it has been executed by the Underwriters and the
Company since the draft delivered to the Investor pursuant to Section 3.1
hereof, and (ii) the receipt by the Investor of all letters, opinions and
certificates that the Underwriters are entitled to receive from the Company in
connection with the closing of the IPO. Investor shall be entitled to rely upon
such letters, opinions and certificates.
(b) Receipt of Articles. The Investor shall have received from
the Company the Articles pursuant to Section 3.2 in form and substance
reasonably satisfactory to the Investor.
(c) Board Approval. The board of directors of Intel shall have
approved and authorized the execution, delivery and performance of this
Agreement and the Alliance Agreement.
(d) Representations and Warranties. The representations and
warranties of the Company contained in Article III shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
(e) Legal Opinion. Investor shall have received a legal
opinion from in-house counsel to the Company to the effect that the issuance of
the Class A Common Stock being purchased by it has been duly authorized, and
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable.
(f) Stock Certificate. The Company shall have delivered the
stock certificate representing the Class A Common Stock being purchased by the
Investor.
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6.2 Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Investor contained in Article IV shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
(b) Payment of Purchase Price. The Investor shall have
delivered the Purchase Price.
(c) Performance of Obligations. The Investor shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing.
(d) Legal Matters. The Company shall have received from the
Investor such legal opinions as shall be reasonably agreed upon by the Company
and the Investor and such other letters, opinions and certificates as the
Company shall reasonably request.
(e) Board Approval. The boards of directors of the Company and
TWC shall have approved and authorized the execution, delivery and performance
of this Agreement and (if necessary) the Alliance Agreement.
6.3 Conditions to Each Party's Obligation. The respective obligation of
each party to consummate the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) HSR Approval. The applicable waiting period (and any
extension thereof) under the HSR Act relating to the transactions contemplated
by this Agreement shall have been terminated or shall have expired.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the transactions contemplated hereby shall be in effect.
(c) Alliance Agreement. The Alliance Agreement shall have been
executed and remain in full force and effect.
(d) Consummation of IPO. The closing of the IPO as
contemplated by the Underwriting Agreement shall be consummated simultaneously
with or prior to the Closing.
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ARTICLE VII
TRANSFER RESTRICTIONS
7.1 Restrictions on Transfer; the 33 Act.
(a) Restrictions on Transfer; Restrictive Legends. The Class A
Common Stock owned by the Investor shall not be transferable except upon the
conditions specified in this Article VII, which conditions are intended to
insure compliance with the provisions of the 33 Act in respect of the Transfer
of any such Class A Common Stock.
The Investor (including each assignee) hereby acknowledges and
agrees that it is acquiring the shares of Class A Common Stock in a transaction
exempt from registration under the 33 Act, and that no shares of Class A Common
Stock may be Transferred in the absence of registration under the 33 Act or an
applicable exemption therefrom. The Investor also hereby agrees that it will, if
requested by an underwriter in connection with a public offering of securities
(including the IPO), enter into a standard lock-up agreement for a period of up
to 180 days preventing it from offering, selling or granting any option for the
sale of or disposing of any of its shares of Common Stock for the same time
period to which the Company or TWC and the Company's executive officers and
directors would be subject under the underwriting agreement in connection with
such public offering, which period the Company shall use reasonable efforts to
limit to a period of not more than 90 days (except in the case of the IPO) and
which shall in no event be in excess of 180 days; provided, however, that
(except in the case of the IPO) Intel is participating in such offering, and
provided further, that, following the 180-day lock-up period in connection with
the IPO (during and prior to which Intel will not be permitted to engage in
Hedging Transactions), Intel and its Affiliates are permitted to enter into
Hedging Transactions. In addition, during any lock-up period in connection with
a secondary offering, Intel and its Affiliates shall be permitted to enter into
transactions that have the effect of maintaining or continuing pre-existing (as
of the time Investor is notified of the offering) Hedging Transaction positions
by continuing, renewing or replacing any such positions on substantially
equivalent terms. The Investor also hereby acknowledges and agrees that it shall
not Transfer (other than to an Affiliate) such shares of Class A Common Stock
for a period of eighteen (18) months from the Closing Date (the "Permitted
Transfer Date") except as permitted in Section 11.1(b). Each certificate
representing the Investor's shares of Class A Common Stock shall (unless
otherwise permitted by the provisions of this Article VII) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SHARES OF COMMON STOCK OF THE ISSUER REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE
STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED WITHOUT (1)
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW OR
(2) AN OPINION OF COUNSEL SATISFACTORY TO WILLIAMS COMMUNICATIONS GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED BECAUSE OF AN EXEMPTION FROM
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THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ANY APPLICABLE
STATE LAW. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE SECURITIES PURCHASE
AGREEMENT DATED AS OF MAY __, 1999, AS AMENDED FROM TIME TO TIME, WHICH PROVIDES
THAT SUCH SHARES MAY NOT BE TRANSFERRED UNTIL NOVEMBER __, 2000 (WHICH DATE IS
EIGHTEEN MONTHS FROM THE DATE HEREOF). COPIES OF THE SECURITIES PURCHASE
AGREEMENT MAY BE OBTAINED UPON REQUEST FROM WILLIAMS COMMUNICATIONS GROUP, INC.
AND ANY SUCCESSOR THERETO."
(b) Non-Applicability of Transfer Restrictions; Removal of
Legends. The restrictions imposed by Section 7.1(a) above upon the
transferability of any shares of Class A Common Stock represented by a
certificate bearing the restrictive legends set forth in such Section 7.1(a) (a
"Restricted Security") shall cease and terminate when such Restricted Security
has been sold pursuant to an effective registration statement under the 33 Act
or transferred pursuant to Rule 144 (or any similar or successor rule thereto)
promulgated under the 33 Act unless the holder thereof is an Affiliate of the
Company. Upon a Change in Control Event of the Company, the restriction on the
Investor prohibiting the Transfer of shares of Class A Common Stock prior to the
Permitted Transfer Date shall cease and terminate. The holder of any Restricted
Security as to which such restrictions shall have terminated shall be entitled
to receive from the Company, without expense, a new certificate of the same type
but not bearing the restrictive legend set forth above and not containing any
other reference to the restrictions imposed by Section 7.1(a) above, provided
that a holder's right to receive, and the Company's obligation to issue, a new
certificate not bearing such restrictive legends and not containing any other
reference to the restrictions imposed by Section 7.1(a) above shall be subject,
in the Company's discretion, to the delivery to the Company of an opinion of
counsel of the transferor (which may include in-house counsel to the Investor)
that subsequent transfers of such Restricted Security by the proposed transferee
will not require registration under the 33 Act.
ARTICLE VIII
VOTING RIGHTS
8.1 Voting Rights. The Investor acknowledges that the Articles provide
that Class A Shares shall have one-tenth the voting power as Class B Shares. If
at any time after the date hereof the Company issues to any Person other than
the Company or any Affiliate of the Company in a private or public sale Common
Stock with voting rights ("Super Voting Rights") that are greater in any
material respect than those the Investor has in its Class A Common Stock, other
than in connection with one or more employee or director related plans or
arrangements or in connection with a spin-off by the Company of the Common Stock
to its shareholders, the Investor will have the right at its option to convert
its shares of Class A Common Stock to new shares of Common Stock with such Super
Voting Rights. If such conversion occurs, all
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references in this Agreement to Class A Common Stock shall be deemed to refer to
the Common Stock with Super Voting Rights.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of the Investor and the Company;
(b) by either the Company or the Investor if the Closing shall
not have occurred by December 31, 1999, and this Agreement has not previously
been terminated; provided, however, that the failure to consummate the Closing
by such date is not a result of either the failure by the party so electing to
terminate this Agreement to perform any of its obligations hereunder or the
breach by the party so electing of its representations and warranties;
(c) if either the Investor or the Company terminates the
Alliance Agreement;
(d) by either the Company or the Investor in the event any
court or governmental agency of competent jurisdiction shall have issued an
order, decree or ruling or taken any other action restricting, enjoining or
otherwise prohibiting the transactions contemplated hereby and such order,
decree, ruling or other action shall have become final and unappealable.
9.2 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to this Article IX, all further obligations of the parties
under this Agreement other than the obligations set forth in this Section 9.2
and Sections 13.11 and 13.14 shall terminate and there shall be no liability of
any party to another party except for a party's breach of any of its
obligations, representations or warranties under this Agreement prior to such
termination.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification.
(a) The Company hereby agrees to indemnify, defend and hold
harmless the Investor and each of its directors, officers and each Person, if
any, who controls (within the meaning of Section 15 of the 33 Act and Section 20
of the 34 Act) the Investor from and against all actual demands, claims, actions
or causes of action, assessments, losses, damages, liabilities, costs and
expenses (collectively, "Claims"), including without limitation interest,
penalties and
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reasonable attorneys' fees and expenses, asserted against, resulting to, or
imposed upon or incurred by the Investor, directly or indirectly, by reason of
or resulting from a breach of any covenant, representation, warranty or
agreement of the Company contained in or made pursuant to this Agreement or
otherwise in connection with the transactions contemplated hereby.
(b) The Investor hereby agrees to indemnify, defend and hold
harmless the Company and each Company Control Person from and against all
Claims, including without limitation interest, penalties and reasonable
attorneys' fees and expenses, asserted against, resulting to, or imposed upon or
incurred by the Company and each Company Control Person, directly or indirectly,
by reason of or resulting from a breach of any covenant, representation,
warranty or agreement of the Investor contained in or made pursuant to this
Agreement or otherwise in connection with the transactions contemplated hereby.
10.2 Terms of Indemnification. The obligations and liabilities of the
parties with respect to Claims by third parties will be subject to the following
terms and conditions:
(a) the indemnified party will give the indemnifying party
prompt written notice of any Claims asserted against, resulting to, imposed upon
or incurred by the indemnified party, directly or indirectly, and the
indemnifying party will undertake the defense thereof by representatives of
their own choosing which are reasonably satisfactory to the indemnified party;
provided that the failure of the indemnified party to give notice as provided in
this Section 10.2 shall not relieve the indemnifying party of its obligations
under this Article X, except to the extent that such failure has materially and
adversely affected the rights of the indemnifying party;
(b) if within a reasonable time after notice of any Claim, the
indemnifying party fails to defend such Claim, the indemnified party will have
the right to undertake the defense, compromise or settlement of such Claim on
behalf of and for the account and at the risk of the indemnifying party, subject
to the right of the indemnifying party to assume the defense of such Claim at
any time prior to settlement, compromise or final determination thereof;
(c) if there is a reasonable probability that a Claim may
materially and adversely affect the indemnified party other than as a result of
money damages or other money payments, the indemnified party will have the right
at its own expense to defend (provided that the indemnifying party shall
continue to control the defense and the indemnified party shall have the right
to participate in such defense), or co-defend, such Claim;
(d) the indemnifying party on one hand and the indemnified
party on the other hand will not, without the prior written consent of the
other, settle or compromise any Claim or consent to entry of any judgment
relating to any such Claim;
(e) with respect to any Claims asserted against the
indemnified party, the indemnified party will have the right to employ one
counsel of its choice in each applicable jurisdiction (if more than one
jurisdiction is involved) to represent the indemnified party if, in the
indemnified party's reasonable judgment, a conflict of interest between the
indemnified party and
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the indemnifying party exists in respect of such Claims, and in that event the
fees and expenses of such separate counsel shall be paid by such indemnifying
party; and
(f) the indemnifying party will provide the indemnified party
reasonable access to all records and documents of the indemnifying party
relating to any Claim.
ARTICLE XI
REGISTRATION RIGHTS
11.1 Registration Rights.
(a) Form S-3 Registration. In the event, at any time within
ninety (90) days prior to the Permitted Transfer Date, the Company shall receive
from any holder or holders of a majority of all Registrable Securities then
outstanding a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Selling Stockholders, then the
Company shall:
(i) Notice. Promptly give written notice of the proposed
registration and the Selling Stockholders' request therefor, and any related
qualification or compliance, to all other holders of Registrable Securities; and
(ii) Registration. As soon as reasonably practicable (but in
no event prior to the Permitted Transfer Date), effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Selling
Stockholders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other holder
joining in such request as are specified in a written request given within
twenty (20) days after the Company provides the notice contemplated by Section
11.1(a)(i); provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section
11.1(a):
(A) if the Selling Stockholders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) representing less than the larger of (I) 50% of the aggregate
Registrable Securities and such other securities then held by all Selling
Stockholders and such other holders, or (II) $50,000,000 of shares (determined
using the Volume-Weighted Average Trading Price); or
(B) if the Company has, within the six (6) month
period preceding the date of such request, already effected a registration under
the 33 Act other than a registration from which the Registrable Securities of
Selling Stockholders have been excluded
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(with respect to all or any portion of the Registrable Securities the Selling
Stockholders requested be included in such registration) pursuant to the
provisions of Section 11.1(b).
(iii) Unavailability of Form S-3. If the Company is not
eligible to use Form S-3, it shall file a Form S-1 in lieu of a Form S-3.
(b) Piggyback Registrations.
(i) Notice. The Company shall notify all holders of
Registrable Securities in writing at least twenty (20) or, in case of a
registration statement proposed to be filed pursuant to Rule 415 of the 33 Act,
ten (10) Business Days prior to filing any registration statement under the 33
Act (including but not limited to registration statements relating to secondary
offerings of securities of the Company before or after the Permitted Transfer
Date, but excluding registration statements relating to any registration under
subsection (a) of this Section 11.1, any employee benefit plan or any merger or
other corporate reorganization) for purposes of effecting a public offering of
securities of the Company in which the Investor is entitled to participate and,
if other stockholders of the Company also are participating in the registration
statement as selling stockholders (except in connection with an acquisition by
the Company), will afford each such holder an opportunity to include in such
registration statement all or any part of the Registrable Securities then held
by such holder. Each holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such holder
shall within ten (10) or, in the case of a registration statement proposed to be
filed pursuant to Rule 415 of the 33 Act, five (5) Business Days after receipt
of the above-described notice from the Company, so notify the Company in
writing, and in such notice shall inform the Company of the number of
Registrable Securities such holder wishes to include in such registration
statement. If a holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(ii) Underwriting. If a registration statement under which the
Company gives notice under this Section 11.1(b) is for an underwritten offering,
then the Company shall so advise the Selling Stockholders. In such event, the
right of any such Selling Stockholder to include its Registrable Securities in a
registration pursuant to this Section 11.1(b) shall be conditioned upon such
Selling Stockholder's participation in such underwriting and the inclusion of
such Selling Stockholder's Registrable Securities in the underwriting to the
extent provided herein. All Selling Stockholders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Agreement, if the managing underwriter determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated,
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first to the Company, and second, to each of the Selling Stockholders and other
holders of registration rights on a parity with the Selling Stockholders
requesting inclusion of their Registrable Securities in such registration
statement on a pro rata basis based on the total number of Registrable
Securities and other securities entitled to registration then held by each such
holder or other holder; provided, however, that the right of the underwriters to
exclude shares (including Registrable Securities) from the registration and
underwriting as described above shall be restricted so that all shares that are
not Registrable Securities and are held by any other Person, including, without
limitation, any Person who is an employee, officer or director of the Company
(or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded
(other than to the extent that such Persons are non-employee directors or other
non-employees of the Company who hold registration rights on a parity with the
Selling Stockholders, such non-employee directors and other non-employees being
entitled to participate with the participating Selling Stockholders on the basis
described under "second" above). If any Selling Stockholder disapproves of the
terms of any such underwriting, such Selling Stockholder may elect to withdraw
therefrom by written notice to the Company and the underwriter delivered at
least ten (10) Business Days prior to the effective date of the registration
statement. Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration.
(c) Registration Obligations. With respect to any registration
statement contemplated in this Section 11.1, the Company will:
(i) prepare and file with the SEC the registration statement
within 90 days after a Selling Stockholders' notice requesting registration or
inclusion in a proposed registration, and use its reasonable efforts to cause
the Registrable Securities covered by such registration statement to become
registered and such registration statement to be declared effective as
expeditiously as possible under the 33 Act or other applicable federal law and
regulations (and cause to be prepared and file any amendments or supplements
thereto as may be necessary to comply with applicable federal law and
regulations); provided, however, that the Company may be allowed to defer filing
of the registration statement: (A) if the president or general counsel of the
Company reasonably determines in good faith that it is in the best interests of
the Company not to disclose the existence of or facts surrounding any proposed
or pending material developments; (B) if the underwriters have notified the
Company that market conditions are such as to recommend deferral; (C) pending
the completion of year-end financial statements or quarterly earnings releases;
or (D) if an offering by the Company of any securities is pending; provided,
however, that any deferral pursuant to clauses (A)-(D) of this paragraph shall
not in the aggregate be for more than 60 days.
(ii) use its reasonable efforts to cause to be registered or
qualified the Registrable Securities covered by such registration statement
under such securities or "blue sky" laws in such jurisdictions within the United
States as any Selling Stockholder may reasonably request; provided, however,
that the Company reserves the right, in its sole discretion, not to cause to be
registered or qualified such Registrable Securities in any jurisdiction where
the
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Company would be required in connection therewith to execute a general consent
to service or to qualify as a foreign corporation or to subject itself to
taxation;
(iii) maintain the effectiveness of any registration statement
hereunder for 90 days or such longer period as may be required by the 33 Act to
enable any Selling Stockholder and the underwriters, if any, to complete such
offering;
(iv) promptly notify each Selling Stockholder of the happening
of any event as a result of which any preliminary prospectus or prospectuses
included in any registration statement hereunder includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements not misleading in light of the
circumstances then existing (in such event, the Company shall prepare a
supplement or post-effective amendment to such registration statement or related
prospectus or file any other required document so that, as thereafter delivered
to the purchasers of Registrable Securities sold thereunder, the prospectus will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading);
(v) have the right to reasonably approve the choice of lead
underwriter for the offering, if an underwritten offering;
(vi) furnish, at the request of any Selling Stockholder, an
opinion, dated the date the registration statement becomes effective, of counsel
representing the Company (which may be in-house counsel) for the purposes of
such registration, addressed to the underwriters, if any, and to such Selling
Stockholder as to such legal matters as such Selling Stockholder shall
reasonably request; and
(vii) furnish, at the request of any Selling Stockholder, a
letter, dated the date the registration statement becomes effective, of
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to such Selling Stockholder as to such accounting
matters as such Selling Stockholder shall reasonably request.
(d) Conditions to Obligations. The obligations of the Company to cause
a registration statement to be prepared pursuant to the provisions of this
Section 11.1 and each Selling Stockholder's right to have Registrable Securities
included in any registration statement pursuant to the provisions of this
Section 11.1 shall be subject to the following conditions:
(i) Each Selling Stockholder shall furnish to the Company in
writing such information and documents as, in the opinion of the Company's
counsel, may be reasonably required to properly cause to be prepared such
registration statement in accordance with applicable provisions of the 33 Act
and the SEC's regulations thereunder or federal or state securities or blue sky
laws and regulations then in effect; and
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(ii) If a Selling Stockholder desires to sell and distribute
such Registrable Securities over a period of time, or from time to time,
pursuant to a registration statement prepared pursuant to the provisions of this
Section 11.1, then such Selling Stockholder shall execute and deliver to the
Company such written undertakings as the Company and its counsel may reasonably
require in order to assure full compliance with the relevant provisions of the
33 Act and the SEC's regulations thereunder or other federal or state securities
or blue sky laws and regulations as then in effect.
(e) Expenses. All expenses incurred in connection with a registration
pursuant to this Section 11.1 (excluding underwriters' and brokers'
discounts and commissions related to shares sold by the Selling
Stockholders and legal fees of counsel for the Selling Stockholders),
including, without limitation all federal and "blue sky" registration,
filing and qualification fees, printers' and accounting fees, and fees
and disbursements of counsel for the Company, shall be borne by the
Company.
(f) Indemnity.
(i) The Company agrees to indemnify and hold harmless each
Selling Stockholder and each Person, if any, who controls (within the meaning of
Section 15 of the 33 Act and Section 20 of the 34 Act) such Selling Stockholder
(a "Control Person") against any losses, claims, damages or liabilities, joint
or several, to which such Selling Stockholder or any such Control Person may
become subject, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any preliminary or
final registration statement or prospectus with respect thereto, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse each Selling Stockholder and each Control Person for any
legal or other expenses reasonably incurred by such Selling Stockholder or such
Control Person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission from any of such documents in reliance
upon and in conformity with written information furnished by or on behalf of
such Selling Stockholder or any such Control Person specifically for use in the
preparation thereof.
(ii) Each Selling Stockholder will, severally and not jointly,
indemnify and hold harmless the Company and each of its directors, officers and
each Person, if any, who controls (within the meaning of Section 15 of the 33
Act and Section 20 of the 34 Act) the Company (a "Company Control Person") to
the same extent as set forth in the foregoing indemnity from the Company to each
Selling Stockholder but only with reference to written information included in
any preliminary or final registration statement or prospectus with respect
thereto, or amendment or supplement thereto, furnished by or on behalf of such
Selling Stockholder specifically for use in the preparation of such documents;
and will reimburse the
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Company or any such Company Control Person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
loss, claim, damage, liability or action for which such Selling Stockholder is
obligated to indemnify the Company or any Company Control Person.
(iii) Promptly after receipt by an indemnified party under
this Section 11.1(f) of notice of any claim or the commencement of any action,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party under Section 11.1(f)(i) or (ii) above, notify the
indemnifying party of any claim or the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under Section 11.1(f)(i) or
(ii) above. In case any such action is brought against any indemnified party and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(iv) If the indemnification provided for in paragraphs (i) or
(ii) of this Section 11.1(f) is unavailable or insufficient in accordance with
its terms in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits as well as
the relative fault of the Company on the one hand and the Selling Stockholder on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable consideration. The relative benefits received by
the Company on the one hand and the Selling Stockholder on the other shall be
deemed to be in the same proportion as (i) the total purchase price received by
the Company from the Investor (based on the average purchase price paid by the
Investor times the number of shares purchased) for the securities to be
reoffered by the Selling Stockholder in such offering bears to (ii) the total
net proceeds received by the Selling Stockholder in such offering. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Selling Stockholder on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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ARTICLE XII
STANDSTILL
12.1 Standstill Provision.
(a) The Investor agrees that for a period of five (5) years
from the Closing Date, it shall not, and shall cause each of its Affiliates not
to, without the prior written consent of the Board of Directors specifically
expressed in a resolution approved by a majority of the directors of the
Company, directly or indirectly, through one or more intermediaries or
otherwise, (i) acquire, agree to acquire or make any proposal to acquire any
securities of the Company or any of its Subsidiaries, any warrant or option to
acquire any such securities, any security convertible into or exchangeable for
any such securities or any other right to acquire any such securities if the
effect of such acquisition would be to increase the beneficial ownership (as
defined in Rule 13d-3 promulgated under the 34 Act) of the Investor to a
percentage greater than five percent (5%) (the "Standstill Percentage") of the
then issued and outstanding shares of Common Stock; (ii) seek or propose any
merger, consolidation, business combination, tender or exchange offer, sale or
purchase of assets or securities, dissolution, liquidation, restructuring,
recapitalization or similar transaction of or involving the Company or any of
its Subsidiaries; (iii) make, or in any way participate in, any "solicitation"
of proxies or consents (whether or not relating to the election or removal of
directors) within the meaning of Rule 14a-1 under the 34 Act with respect to any
securities of the Company or any of its Subsidiaries, or demand a copy of the
stock ledger, list of stockholders, or any other books and records of the
Company or any of its Subsidiaries; (iv) form, join or in any way participate in
a "group" (within the meaning of Section 13(d)(3) of the 34 Act), with respect
to any securities of the Company or any of its Subsidiaries; (v) otherwise act,
alone or in concert with others, to seek to control the management, Board of
Directors or policies of the Company or any of its Subsidiaries; (vi) deposit
any Common Stock in any voting trust or subject any Common Stock to any
arrangement or agreement with respect to the voting of such shares; (vii) call,
seek to have called or execute any written consent calling for any meeting of
the stockholders of the Company; (viii) seek, alone or in concert with others,
representation on the Board of Directors or seek the removal of any member of
such Board or a change in the composition or size of such Board; (ix) enter into
any agreements (whether written or oral) with, or finance or assist, any other
persons in connection with any of the foregoing, or (x) make any publicly
disclosed proposal regarding any of the foregoing. The provisions in this
Article XII shall not apply in the event of a Potential Change in Control Event,
unless the activities defined in (a) or (b) of the definition of "Potential
Change in Control Event" which gave rise to the Potential Change in Control
Event are discontinued and remain so for one year without the occurrence of a
Potential Change in Control Event. In such event, the provisions of this Article
XII shall be reinstated and remain in full force and effect thereafter.
(b) The Investor will not be obliged to dispose of any Common
Stock to the extent that the aggregate percentage of the Common Stock
represented by the Common Stock
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Beneficially Owned by the Investor or which the Investor has a right to acquire
is increased beyond the Standstill Percentage (i) as a result of a
recapitalization of the Company or a repurchase or exchange of securities by the
Company or any other action taken by the Company or its Affiliates; (ii) as a
result of any investment in any equity index (e.g., the S&P 500), provided that
Investor shall not vote such shares; (iii) by way of stock dividends or other
distributions or rights or offerings made available to holders of shares of
Common Stock generally; (iv) with the consent of a simple majority of the
members of the Company's Board of Directors; or (v) as part of a transaction on
behalf of Investor's Defined Benefit Pension Plan, Profit Sharing Retirement
Plan, 401(k) Savings Plan, Sheltered Employee Retirement Plan and Sheltered
Employee Retirement Plan Plus, or any successor or additional retirement plans
thereto (collectively, the "Retirement Plans") where the Company's shares in
such Retirement Plans are voted by a trustee for the benefit of Investor
employees or, for those Retirement Plans where Investor controls voting, where
Investor agrees not to vote any shares of such Retirement Plan Common Stock that
would cause Investor to exceed the Standstill Percentage.
12.2 Notice of Proposed Transfer. If, at any time after the Permitted
Transfer Date, the Investor intends to sell more than one percent (1%) of the
issued and outstanding shares of Class A Common Stock to a Third Party other
than pursuant to a Registration Statement, the Investor shall provide a written
notice of such intent to the Company at least Two (2) Business Days prior to
offering any such shares to any Third Party.
ARTICLE XII
MISCELLANEOUS
13.1 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York (without giving effect to
conflicts of law principles thereof).
13.2 Remedies Cumulative. Except as herein provided, the remedies
provided herein shall be cumulative and shall not preclude assertion by any
party hereto of any other rights or the seeking of any other remedies against
the other party hereto.
13.3 Brokerage. Each party hereto will indemnify and hold harmless the
other against and in respect of any claim for brokerage or other commission
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
13.4 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
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13.5 Notices. Notices required under this Agreement shall be deemed to
have been adequately given if delivered in person or sent to the recipient at
its address (or facsimile number, as the case may be) set forth in Exhibit 13.5
(with copies to the persons specified in Exhibit 13.5 at the respective
addresses for such persons specified in such Exhibit 13.5) or such other address
as such party may from time to time designate in writing by certified mail
(return receipt requested), facsimile or overnight courier.
13.6 No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege granted under this Agreement shall operate as a waiver
of such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
13.7 Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by the Company and by the Investor. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any shares of Class A Common Stock purchased under this Agreement at
the time outstanding, each future holder of all such shares, and the Company.
13.8 Rights of the Investor. Subject to the terms and conditions of
this Agreement, the Investor shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement, including without limitation the right to consent to the
waiver of any obligation of the Company under this Agreement and to enter into
an agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such holder shall not incur any
liability to any other holder or holders of Class A Common Stock with respect to
exercising or refraining from exercising any such right or rights.
13.9 Survival. All representations and warranties made by the Company
and the Investor contained in this Agreement, and the obligation of the parties
to indemnify each other pursuant to Section 10.1 hereof, shall survive the
execution and delivery of this Agreement, any examination or due diligence
inquiry by a party and the Closing until the date which is one year after the
Closing Date. All covenants and agreements of the Company and the Investor
contained in this Agreement (which terms do not include representations and
warranties) shall, except as provided in such covenant or agreement, survive the
Closing and shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Investor or any controlling Person
thereof or by or on behalf of the Company, any of its officers and directors or
any controlling Person thereof. The obligations to indemnify and hold harmless a
party hereto, pursuant to Article X hereof, shall survive only until the
expiration of the applicable survival period for the representation and warranty
under which the claim for indemnification is being made; provided, however, that
such obligations to indemnify and hold harmless shall not terminate with respect
to any such item as to which the Person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice
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(stating in reasonable detain the basis of such claim) to the party to be
providing the indemnification.
13.10 Entire Understanding. This Agreement and the agreements to be
executed in connection therewith on the Closing Date express the entire
understanding of the parties and supersede all prior and contemporaneous
agreements and undertakings of the parties with respect to the subject matter
hereof and thereof. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
13.11 Expenses. Each party will pay all of its own expenses, including
attorney's fees incurred in connection with the negotiation of this Agreement,
the performance of its obligations hereunder and the consummation of
transactions contemplated by this Agreement.
13.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but which taken together shall
constitute one agreement.
13.13 Assignment; No Third-Party Beneficiaries.
(a) Except as otherwise expressly provided herein, this
Agreement and the rights hereunder shall not be assignable or transferable by
either party without the prior written consent of the other; provided that, if
such assignment or transfer is consented to, such assignee or transferee
expressly assumes in writing all of the such party's obligations hereunder.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
(b) This Agreement is for the sole benefit of the parties
hereto and their respective successors and permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such successors and permitted assigns, any legal or
equitable rights hereunder.
(c) Intel and the Investor shall be permitted, without the
consent of the Company, to transfer Class A Common Stock (subject to applicable
federal and state securities laws) and to assign all its rights and obligations
under this Agreement, including without limitation the right to purchase Class A
Common Stock and common equity securities under Article II and registration
rights under Article XI, to any of its Affiliates; provided, however, that such
assignee expressly assumes in writing all of Intel or the Investor's, as the
case may be, obligations hereunder; and provided, further that in the event of
such assignment Intel or the Investor, as the case may be, shall notify the
Company in writing of such assignment, and for all purposes of this Agreement
all references to Intel or the Investor shall mean such Affiliate.
13.14 Confidentiality/Publicity. Confidential or proprietary
information disclosed by either party under this Agreement shall be considered
confidential information (the "Confidential
27
<PAGE> 32
Confidential & Proprietary
Information") and shall not be disclosed by the Company or the Investor to any
third party, except as permitted hereunder.
(a) All press releases and announcements concerning the
investment contemplated by this Agreement shall be mutually agreed to by the
Company and the Investor except as otherwise provided in this Section.
(b) The Company may disclose the terms of the investment
contemplated by this Agreement and the terms of the Alliance Agreement in its
registration statement with respect to the IPO. Intel shall cooperate with the
Company in good faith in reviewing such disclosure; provided that Intel shall
have the right to approve such disclosure prior to the filing of any amendment
to the registration statement or prospectus that includes disclosure of the
relationship between the Company and Intel (such approval not to be unreasonably
delayed). The Company will provide Intel drafts of any such disclosure at least
Two (2) Business Days prior to the filing of any amendment to the registration
statement or prospectus. The Company may file this Agreement or the Alliance
Agreement as exhibits to the registration statement, but Intel shall have the
right to request that the Company seek confidential treatment of specified
information in the Alliance Agreement.
(c) In the event that the Company or the Investor is requested
or becomes legally compelled (by statute or regulation or by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process (including in connection with a
public offering of the Company's securities), to disclose any Confidential
Information not previously publicly disclosed, such party (the "Disclosing
Party") shall provide the other party (the Non-Disclosing Party") with prompt
written notice of that fact so that the other party may seek (with the
cooperation and reasonable efforts or the Disclosing Party) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the Confidential Information
which is legally required and shall exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded the Confidential
Information to the extent reasonably requested by the Non-Disclosing Party.
(d) The provisions of this Section 13.14 shall not prohibit or
restrict in any way disclosure by a party with respect to this Agreement in
connection with any financing, strategic transaction, acquisition or disposition
involving such party or any of its Affiliates, provided that such disclosure
shall be first approved by the other party, which approval shall not be
unreasonably withheld or delayed.
(e) The provisions of this Section 13.14 shall be in addition
to, and not in substitution for, the provisions of any separate nondisclosure
agreement executed by the parties hereto with respect to the transactions
contemplated hereby, except that, in the event of any contradiction between this
Section and any such agreement, this Section shall prevail.
13.15 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
28
<PAGE> 33
Confidential & Proprietary
13.16 Aggregation of Stock. All shares of the Class A Common Stock held
or acquired by Affiliates or Persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WILLIAMS COMMUNICATIONS GROUP, INC.
By: _____________________________________
THE WILLIAMS COMPANIES, INC.
By: _____________________________________
INTEL CORPORATION
By: ______________________________________
Arvind Sodhani, Treasurer and Vice Presendent
SIGNATURE PAGE TO WILLIAMS COMMUNICATIONS GROUP, INC.
SECURITIES PURCHASE AGREEMENT DATED MAY 24, 1999
29
<PAGE> 1
EXHIBIT 10.13
U.S. $1,000,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 23, 1997
Among
THE WILLIAMS COMPANIES, INC.
NORTHWEST PIPELINE CORPORATION
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
TEXAS GAS TRANSMISSION CORPORATION
WILLIAMS PIPE LINE COMPANY
WILLIAMS HOLDINGS OF DELAWARE, INC.
WILTEL COMMUNICATIONS, LLC
as Borrowers
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
Co-Agents:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANK OF MONTREAL
CREDIT LYONNAIS NEW YORK BRANCH
THE CHASE MANHATTAN BANK
CIBC INC.
THE FIRST NATIONAL BANK OF CHICAGO
ROYAL BANK OF CANADA
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.18. Extension of Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.19. Voluntary Conversion of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . . 29
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.10. Survival of Agreements, Representations and Warranties, Etc. . . . . . . . . . . . . . . . . 53
Section 8.11. Borrowers' Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.14. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted NWP Liens
Schedule IV - Permitted TGPL Liens
Schedule V - Permitted TGT Liens
Schedule VI - Permitted TWC Liens
-ii-
<PAGE> 4
Schedule VII - Permitted WPL Liens
Schedule VIII - Permitted WHD Liens
Schedule IX - Permitted WilTel Liens
Schedule X - Commitments
Schedule XI - Rating Categories
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of B Borrowing
Exhibit C - Opinion of William G. von Glahn
Exhibit D - Opinion of Special Counsel to Agent
Exhibit E - Existing Transfer Restrictions
Exhibit F - Form of Transfer Agreement
-iii-
<PAGE> 5
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 23, 1997
This Second Amended and Restated Credit Agreement dated as of July 23,
1997, is by and among the Borrowers, the Agent and the Banks. In consideration
of the mutual covenants and agreements contained herein, the Borrowers, the
Agent and the Banks hereby agree as set forth herein.
PRELIMINARY STATEMENTS
1. The Borrowers, the Agent and certain of the Banks are parties
to the Amended and Restated Credit Agreement dated as of December 20, 1996 (the
"1996 Credit Agreement").
2. The Borrowers have requested that the 1996 Credit Agreement be
further amended and, as so further amended, be restated in its entirety, and
the parties hereto have agreed to do so on the terms and conditions set forth
herein.
3. The parties hereto have agreed to restate the 1996 Credit
Agreement in its entirety for convenience, and this Second Amended and Restated
Credit Agreement constitutes for all purposes an amendment to the 1996 Credit
Agreement, and each reference to an Advance or Borrowing herein shall include
each advance or borrowing made heretofore under the 1996 Credit Agreement as
well as each Advance or Borrowing made hereafter under this Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Bank to a Borrower as part
of an A Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type to the same Borrower made by each of the
Banks pursuant to Section 2.01.
"A Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the A Advances to such Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent pursuant
to Article VII hereof and any successor Agent pursuant to Section
7.06.
<PAGE> 6
"Agreement" means this Second Amended and Restated Credit
Agreement dated as of July 23, 1997, among the Borrowers, the Agent
and the Banks, as amended or modified from time to time.
"Applicable Commitment Fee Rate" means the rate per annum set
forth on Schedule XI under the heading "Applicable Commitment Fee
Rate" for the relevant Rating Category applicable to TWC from time to
time. The Applicable Commitment Fee Rate shall change when and as the
relevant Rating Category applicable to TWC changes.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance
and such Bank's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and, in the case of a B Advance, the office of such Bank
notified by such Bank to the Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means
(i) as to any Eurodollar Rate Advance to any Borrower (other than WPL during
such times as WPL is Unrated and WilTel during such times as WilTel is Unrated),
the rate per annum set forth in Schedule XI under the heading "Applicable
Margin" for the relevant Rating category applicable to such Borrower from time
to time;
(ii) for each day during such times as WPL is Unrated, as to any Eurodollar Rate
Advance to WPL, the rate per annum set forth in the following table for the
relevant amount of the Applicable WPL Debt to TNW Ratio for such day:
<TABLE>
<CAPTION>
Applicable
WPL Debt to Applicable
TNW Ratio Margin
----------- ----------
<S> <C>
Less than .55 .325%
.55 or greater and
less than .60 .40%
.60 or greater .65%
</TABLE>
and (iii) for each day during such times as WilTel is Unrated, as to any
Eurodollar Rate Advance to WilTel (A) as to the time from July 23, 1997, to and
including September 30, 1997, a rate per annum equal to .275%; (B) as to such
times subsequent to September 30, 1997, the rate per annum set forth in the
following table for the relevant amount of Applicable WilTel Debt to EBITDA
Ratio for such day:
-2-
<PAGE> 7
<TABLE>
<CAPTION>
Applicable
WilTel Debt to Applicable
EBITDA Margin
-------------- ----------
<S> <C>
Less than or equal to 1.00 .225%
Greater than 1.00 and less
than or equal to 1.75 .25%
Greater than 1.75 and less
than or equal to 2.50 .275%
Greater than 2.50 and less
than or equal to 3.50 .325%
Greater than 3.50 and less
than or equal to 4.50 .40%
Greater than 4.50 .65%
</TABLE>
The Applicable Margin determined pursuant to clause (i) of this definition for
any Eurodollar Rate Advance to any Borrower shall change when and as the
relevant Rating Category applicable to such Borrower changes. Furthermore, the
applicability of clause (i) or (ii) of this definition to WPL and of clause (i)
or (iii) of this definition to WilTel shall change when and as the status of WPL
or WilTel, as applicable, as Unrated or not Unrated changes. For example, if
WPL borrows on September 15 of a year a Eurodollar Rate Advance with a three
month Interest Period and WPL is Unrated from September 15 through October 15 of
such year and is not Unrated thereafter, then the Applicable Margin for such
Advance will be determined (1) pursuant to the foregoing clause (ii) from
September 15 through October 15 of such year (and the Applicable WPL Debt to TNW
Ratio (a) for the days from September 15 through September 30 will be the WPL
Debt to TNW Ratio on March 31 of such year and (b) for the days after September
30 will be the WPL Debt to TNW Ratio on June 30 of such year), and (2) pursuant
to the foregoing clause (i) during the other days of such Interest Period.
"Applicable WilTel Debt to EBITDA Ratio" for any day means the
WilTel Debt to EBITDA Ratio as of the end of the calendar quarter that is
the second calendar quarter prior to such day.
"Applicable WPL Debt to TNW Ratio" for any day means the WPL Debt
to TNW Ratio as of the end of the calendar quarter which is the second
calendar quarter prior to such day. For example, the Applicable WPL Debt
to TNW Ratio for any day in the calendar quarter ending September 30 of a
year will be the WPL Debt to TNW Ratio as of March 31 of such year.
"Arranger" means Citicorp Securities, Inc.
-3-
<PAGE> 8
"Attributable Obligation" of any Person means, with respect to
any Sale and Lease-Back Transaction of such Person as of any particular
time, the present value at such time discounted at the rate of interest
implicit in the terms of the lease of the obligations of the lessee under
such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at
the option of such Person, be extended).
"B Advance" means an advance by a Bank to a Borrower as part of a
B Borrowing resulting from the auction bidding procedure described in
Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances to the same Borrower from each of the Banks whose offer to make
one or more B Advances as part of such borrowing has been accepted by such
Borrower under the auction bidding procedure described in Section 2.16.
"B Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-2 hereto, (or,
in the case of B Advances outstanding on July 23, 1997, in substantially
the form of Exhibit A-2 to the 1996 Credit Agreement) evidencing the
indebtedness of such Borrower to such Bank resulting from a B Advance made
to such Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.01.
"Banks" means the lenders listed on the signature pages hereof
and each other Person that becomes a Bank pursuant to the last sentence of
Section 8.06(a).
"Base Rate" means a fluctuating interest rate per annum as shall
be in effect from time to time which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's
base rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of
deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday
(or, if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates reported
by certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such
rates received by Citibank from three New York certificate of
deposit dealers of recognized standing selected by Citibank, in
either case adjusted to the nearest 1/4 of one percent or, if
there is no nearest 1/4 of one percent, to the next higher 1/4
of one percent; or
(c) 1/2 of one percent per annum above the Federal
Funds Rate in effect from time to time.
-4-
<PAGE> 9
"Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.06(a).
"Borrowers" means TWC, WHD, NWP, TGPL, TGT, WilTel and WPL.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advances or relates to any B
Advance as to which the related Notice of B Borrowing is delivered
pursuant to clause (B) of Section 2.16(a)(i), on which dealings are
carried on in the London interbank market.
"Citibank" means Citibank, N.A.
"Co-Agent" means each of Bank of America National Trust and
Savings Association, Bank of Montreal, Credit Lyonnais New York Branch,
The Chase Manhattan Bank, CIBC Inc., The First National Bank of Chicago,
and Royal Bank of Canada.
"Code" means, as appropriate, the Internal Revenue Code of 1986,
as amended, or any successor federal tax code, and any reference to any
statutory provision shall be deemed to be a reference to any successor
provision or provisions.
"Commitment" of any Bank to any Borrower means at any time the
lesser of (i) the amount set opposite or deemed (pursuant to clause (vii)
of the last sentence of Section 8.06(a) and as reflected in the relevant
Transfer Agreement referred to in such sentence) to be set opposite such
Bank's name for such Borrower on Schedule X as such amount may be
terminated, reduced or increased after July 23, 1997, pursuant to Section
2.04, Section 2.17, Section 6.01 or Section 8.06(a), or (ii) the amount of
the Commitment of such Bank to TWC at such time.
"Consolidated" refers to the consolidation of the accounts of any
Person and its subsidiaries in accordance with generally accepted
accounting principles.
"Consolidated Net Worth" of any Person means the Net Worth of
such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the
Tangible Net Worth of such Person and its Subsidiaries on a Consolidated
basis.
"Convert," "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.02, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of such
Person for borrowed money, (ii) obligations of such Person evidenced by
bonds, debentures or notes, (iii) obligations of such Person to pay the
deferred purchase price of property or services, (iv) monetary obligations
of such Person as lessee under leases that are, in accordance
-5-
<PAGE> 10
with generally accepted accounting principles, recorded as capital leases,
(v) obligations of such Person under guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
or clause (vii) of this definition, (vi) indebtedness or obligations of
others of the kinds referred to in clauses (i) through (v) or clause (vii)
of this definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III; paragraph (y) of Schedule
IV; paragraph (y) of Schedule V; paragraph (y) of Schedule VI; paragraph
(h) of Schedule VII; paragraph (y) of Schedule VIII; or paragraph ( ) of
Schedule IX or under or resulting from any sale and leaseback referred to
in paragraph (aa) of Schedule III; paragraph (aa) of Schedule IV;
paragraph (aa) of Schedule V; paragraph (bb) of Schedule VI; paragraph (j)
of Schedule VII; paragraph (aa) of Schedule VIII or paragraph ( ) of
Schedule IX.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or pursuant to Section 8.06(a), or such
other office of such Bank as such Bank may from time to time specify to
the Borrowers and the Agent.
"EBITDA" means for any period the sum of (i) the Consolidated net
income (or loss) of WilTel and its Subsidiaries for such period determined
in accordance with generally accepted accounting principles plus (ii) to
the extent included in the determination of such net income (or loss), the
Consolidated charges for such period for interest, depreciation, depletion
and amortization, plus (or, if there is a benefit from income taxes,
minus) (iii) to the extent included in the determination of such net
income, the amount of the provision for or benefit from income interest;
provided, however, that in determining such Consolidated net income, such
Consolidated charges and such provision for or benefit from income taxes,
there shall be included therefrom (to the extent otherwise included
therein) (a) the net income (or loss) of, charges for interest,
depreciation, depletion and amortization of, and such provision for or
benefit from income taxes of, any Person acquired by WilTel or any
Subsidiary of WilTel in a pooling-of-interest transaction for any period
prior to the date of such transaction, (b) the net income (but not loss)
of, charges for interest, depreciation, depletion and amortization of, and
such provision for (but not benefit from) income taxes of, any Person
which is subject to any restriction which prevents the payment of
dividends or the making of distributions on the capital stock, partnership
interests or other ownership interests of such Person to the extent of
such restrictions, (c) pre-tax gains or losses on the sale, transfer or
other disposition of any property by WilTel or its Subsidiaries (other
than sales, transfer and other dispositions in the ordinary course of
business), (d) all reported extraordinary gains and reported extraordinary
losses, prior to applicable income taxes, and (e) any item constituting
the cumulative effect of a reported change in accounting principles, prior
to applicable income taxes.
"Environment" shall have the meaning set forth in 42 U.S.C.
Section 9601(8) as defined on the date of this Agreement, and
"Environmental" shall mean pertaining or relating to the Environment.
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"Environmental Protection Statute" shall mean any United States
local, state or federal, or any foreign, law, statute, regulation, order,
consent decree or other agreement or Governmental Requirement arising from
or in connection with or relating to the protection or regulation of the
Environment, including, without limitation, those laws, statutes,
regulations, orders, decrees, agreements and other Governmental
Requirements relating to the disposal, cleanup, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Waste, Hazardous Substances or any pollutant or contaminant, wherever
located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder from time to time.
"ERISA Affiliate" of any Borrower means any trade or business
(whether or not incorporated) which is a member of a group of which such
Borrower is a member and which is under common control within the meaning
of the regulations under Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that term
in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or pursuant to Section 8.06(a) (or, if no
such office is specified, its Domestic Lending Office) or such other
office of such Bank as such Bank may from time to time specify to the
Borrowers and the Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing, an
interest rate per annum (rounded upward to the nearest whole multiple of
1/16 of 1% per annum, if such rate is not such a multiple) equal to the
rate per annum at which deposits in U.S. dollars are offered by the
principal office of Citibank in London, England, to prime banks in the
London interbank market at 11:00 A.M. (London time) two Business Days
before the first day of such Interest Period in an amount substantially
equal to the amount of the Eurodollar Rate Advance of Citibank comprising
part of such A Borrowing to be outstanding during such Interest Period and
for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance that bears interest
as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any Interest
Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for such Bank with respect to
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liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
For purposes of clause (iv) of the definition herein of "Interest Period",
Section 2.19 and Section 6.01, an Event of Default exists as to a
particular Borrower if such Event of Default exists wholly or in part as a
result of any event, condition, action, inaction, representation or other
matter of, by or otherwise directly or indirectly pertaining to such
Borrower or any material Subsidiary of such Borrower. Without limiting
the foregoing and for purposes of further clarification, it is agreed that
inasmuch as each of WilTel, WHD, NWP, WPL, TGPL and TGT is a Subsidiary of
TWC, any Event of Default that exists as to any of WilTel, WHD, NWP, WPL,
TGPL or TGT also exists as to TWC.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers,
as published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three federal funds brokers of recognized standing selected
by it.
"Governmental Requirements" means all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations,
rules, franchises, permits, certificates, licenses, authorizations and the
like and any other requirements of any government or any commission,
board, court, agency, instrumentality or political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42
U.S.C. Section 9601(14) and shall also include each other substance
considered to be a hazardous substance under any Environmental Protection
Statute.
"Hazardous Waste" shall have the meaning set forth in 42 U.S.C.
Section 6903(5) and shall also include each other substance considered to
be a hazardous waste under any Environmental Protection Statute
(including, without limitation 40 C.F.R. Section 261.3).
"Insufficiency" means, with respect to any Plan, the amount, if
any, by which the present value of the vested benefits under such Plan
exceeds the fair market value of the assets of such Plan allocable to such
benefits.
"Interest Period" means, for each A Advance to a Borrower
comprising part of the same A Borrowing, the period commencing on the date
of such A Advance or the date of the Conversion of any Base Rate Advance
into a Eurodollar Rate Advance and ending on the last day of the period
selected by such Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by such Borrower pursuant to the provisions below. The
duration of each Interest Period shall be one, two, three or six months,
in each case as such Borrower may, upon notice
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received by the Agent not later than 11:00 A.M. (New York City time) on
the third Business Day prior to the first day of such Interest Period,
select (it being agreed that selection of a subsequent Interest Period for
an outstanding Eurodollar Rate Advance does not require that a Notice of A
Borrowing be given, inasmuch as no Advance is being requested or made as a
result of such selection); provided, however, that:
(i) Interest Periods commencing on the same date for
A Advances comprising part of the same A Borrowing shall be of
the same duration;
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day;
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of
the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month; and
(iv) no Borrower may select any Interest Period that
ends after the Termination Date, and no Borrower may select any
Interest Period if any Event of Default exists as to such
Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, encumbrance or other type of preferential arrangement
to secure or provide for the payment of any obligation of any Person,
whether arising by contract, operation of law or otherwise (including,
without limitation, the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention
agreement).
"Majority Banks" means at any time Banks holding at least 66-2/3%
of the then aggregate unpaid principal amount of the A Notes held by
Banks, or, if no such principal amount is then outstanding, Banks having
at least 66-2/3% of the Commitments or, if no such principal amount is
then outstanding and all Commitments have terminated, Banks holding at
least 66-2/3% of the then aggregate unpaid principal amount of the B Notes
held by Banks (provided that for purposes of this definition and Sections
2.17, 6.01 and 7.01 neither any Borrower nor any Subsidiary or Related
Party of any Borrower, if a Bank, shall be included in (i) the Banks
holding the A Notes or B Notes or (ii) determining the aggregate unpaid
principal amount of the A Notes or the B Notes or the amount of the
Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate
of any Borrower is
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<PAGE> 14
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which any
Borrower or any ERISA Affiliate of any Borrower, and one or more employers
other than any Borrower or an ERISA Affiliate of any Borrower, is making
or accruing an obligation to make contributions or, in the event that any
such plan has been terminated, to which any Borrower or any ERISA
Affiliate of any Borrower made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Worth" of any Person means, as of any date of determination,
the excess of total assets of such Person over total liabilities of such
Person, total assets and total liabilities each to be determined in
accordance with generally accepted accounting principles.
"1996 Credit Agreement" has the meaning specified in the
preliminary statements of this Agreement.
"Non-Borrowing Subsidiary" of any Borrower means a Subsidiary of
such Borrower which Subsidiary is not itself a Borrower.
"Non-Recourse Debt" means Debt incurred by any non-material,
Non-Borrowing Subsidiary to finance the acquisition (other than any
acquisition from TWC or any Subsidiary) or construction of a project,
which Debt does not permit or provide for recourse against TWC or any
Subsidiary of TWC (other than the Subsidiary that is to acquire or
construct such project) or any property or asset of TWC or any Subsidiary
of TWC (other than property or assets of the subsidiary that is to acquire
or construct such project).
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted NWP Liens" means Liens specifically described on
Schedule III.
"Permitted TGPL Liens" means Liens specifically described on
Schedule IV.
"Permitted TGT Liens" means Liens specifically described on
Schedule V.
"Permitted TWC Liens" means Liens specifically described on
Schedule VI.
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<PAGE> 15
"Permitted WHD Liens" means Liens specifically described on
Schedule VIII.
"Permitted WilTel Liens" means Liens specifically described on
Schedule IX.
"Permitted WPL Liens" means Liens specifically described on
Schedule VII.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) as defined in Section 3(2) of ERISA currently
maintained by, or to which contributions have been made at any time after
December 31, 1984, by, any Borrower or any ERISA Affiliate of any Borrower
for employees of a Borrower or any such ERISA Affiliate and covered by
Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code.
"Public Filings" means TWC's, NWP's, TGPL's and TGT's respective
annual reports on Form 10-K for the year ended December 31, 1996, and
TWC's, NWP's, TGPL's and TGT's respective quarterly reports on Form 10-Q
for the quarter ended March 31, 1997.
"Rating Category" means, as to any Borrower, the relevant
category applicable to such Borrower from time to time as set forth on
Schedule XI, which is based on the ratings (or lack thereof) of such
Borrower's senior unsecured long-term debt by S&P or Moody's.
"Related Party" of any Person means any corporation, partnership,
joint venture or other entity of which more than 10% of the outstanding
capital stock or other equity interests having ordinary voting power to
elect a majority of the board of directors of such corporation,
partnership, joint venture or other entity or others performing similar
functions (irrespective of whether or not at the time capital stock or
other equity interests of any other class or classes of such corporation,
partnership, joint venture or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person or which owns at the time directly or
indirectly more than 10% of the outstanding capital stock or other equity
interests having ordinary voting power to elect a majority of the board of
directors of such Person or others performing similar functions
(irrespective of whether or not at the time capital stock or other equity
interests of any other class or classes of such corporation, partnership,
joint venture or other entity shall or might have voting power upon the
occurrence of any contingency); provided, however, that neither TWC nor
any Subsidiary of TWC shall be considered to be a Related Party of TWC or
any Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Group, a division of
Mc-Graw Hill, Inc. on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of such Person,
directly or indirectly, whereby such
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<PAGE> 16
Person or any Subsidiary of such Person shall sell or transfer any
property, whether now owned or hereafter acquired, and whereby such Person
or any Subsidiary of such Person shall then or thereafter rent or lease as
lessee such property or any part thereof or other property which such
Person or any Subsidiary of such Person intends to use for substantially
the same purpose or purposes as the property sold or transferred;
provided, however, that any sale and lease-back of cushion gas, whether
now or hereafter existing, shall not be considered to be a Sale and
Lease-Back Transaction and any sale and lease-back of inventory, whether
now or hereafter existing, by WPL or any of its Subsidiaries (other than
another Borrower) shall not be considered to be a Sale and Lease-Back
Transaction.
"Stated Termination Date" means July 31, 2002, or such later
date, if any as may be agreed to by the Borrowers and the Banks pursuant
to Section 2.18.
"Subordinated Debt" means any Debt of any Borrower which is
effectively subordinated to the obligations of such Borrower hereunder and
under the Notes.
"Subsidiary" of any Person means any corporation, partnership,
joint venture or other entity of which more than 50% of the outstanding
capital stock or other equity interests having ordinary voting power to
elect a majority of the board of directors of such corporation,
partnership, joint venture or other entity or others performing similar
functions (irrespective of whether or not at the time capital stock or
other equity interests of any other class or classes of such corporation,
partnership, joint venture or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person.
"Tangible Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to be
determined in accordance with generally accepted accounting principles,
excluding, however, from the determination of total assets (i) patents,
patent applications, trademarks, copyrights and trade names, (ii)
goodwill, organizational, experimental, research and development expense
and other like intangibles, (iii) treasury stock, (iv) monies set apart
and held in a sinking or other analogous fund established for the
purchase, redemption or other retirement of capital stock or Subordinated
Debt, and (v) unamortized debt discount and expense.
"Termination Date" means the earlier of (i) the Stated
Termination Date or (ii) the date of termination in whole of the
Commitments pursuant to Section 2.04, 2.17 or 6.01.
"Termination Event" means (i) a "reportable event", as such term
is described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC), or an event
described in Section 4062(f) of ERISA, or (ii) the withdrawal of any
Borrower or any ERISA Affiliate of any Borrower from a Multiple Employer
Plan during a plan year in which it was a "substantial employer," as such
term is defined in Section 4001(a)(2) of ERISA, or the incurrence of
liability by any Borrower or any ERISA Affiliate of any Borrower under
Section 4064 of ERISA upon the termination
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<PAGE> 17
of a Plan or Multiple Employer Plan, or (iii) the distribution of a notice
of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or
the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, or (iv) the institution of proceedings to terminate a Plan by the
PBGC under Section 4042 of ERISA, or (v) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a
Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware
corporation.
"Transfer Agreement" has the meaning specified in Section 8.06.
"TWC" means The Williams Companies, Inc., a Delaware corporation.
"Type" has the meaning set forth in the definition herein of A
Advance.
"Unrated" means, as to any Borrower, that no senior unsecured
long-term debt of such Borrower is rated by S&P and no senior unsecured
long-term debt of such Borrower is rated by Moody's.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of
such Person all of the capital stock and other equity interests of which
is owned by such Person or any Wholly-Owned Subsidiary of such Person.
"WilTel Pro Forma Income Statements" means the pro forma income
statements for the calendar quarters ended June 30, 1996, September 30,
1996, December 31, 1996, and March 31, 1997, included as Exhibit G hereto.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"WHD" means Williams Holdings of Delaware, Inc., a Delaware
corporation.
"WilTel" means WilTel Communications, LLC, a Delaware limited
liability company.
"WilTel Debt to EBITDA Ratio" means, as of the end of any
calendar quarter, the ratio of (i) the aggregate amount, as of the end of
such quarter, of all Debt of WilTel and its Subsidiaries on a Consolidated
basis to (ii) EBITDA for the period of four consecutive calendar quarters
ending on (and including) the last day of such calendar quarter; provided,
however, in calculating the WilTel Debt to EBITDA Ratio for calendar
quarters ending prior to and including June 30, 1998, the WilTel Debt to
EBITDA Ratio shall be determined based upon the WilTel Pro Forma Income
Statements to the extent necessary because actual income statements are
not available.
"WNG" means Williams Natural Gas Company, a Delaware corporation.
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"WPL" means Williams Pipe Line Company, a Delaware corporation.
"WPL Debt to TNW Ratio" means at any date the ratio of (i) the
aggregate amount at such date of all Debt of WPL and its Subsidiaries on a
Consolidated basis to (ii) the sum of the Consolidated Tangible Net Worth
at such date of WPL plus the aggregate amount at such date of all Debt of
WPL and its Subsidiaries on a Consolidated basis.
Section 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding."
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, and each reference herein to "generally
accepted accounting principles" shall mean generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e)(i).
Section 1.04. Miscellaneous. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.05. Ratings. A rating, whether public or private, by
S&P or Moody's shall be deemed to be in effect on the date of announcement or
publication by S&P or Moody's, as the case may be, of such rating or, in the
absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the announcement or publication of, or
in the absence of such announcement or publication, the effective date of, any
change in, or withdrawal or termination of, such rating. In the event the
standards for any rating by Moody's or S&P are revised, or any such rating is
designated differently (such as by changing letter designations to different
letter designations or to numerical designations), the references herein to
such rating shall be deemed to refer to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Majority Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If
either Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of a Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of a Borrower Ba1 and other such debt of such Borrower
Ba2, the senior unsecured long-term debt of such Borrower shall be deemed to be
rated Ba2 by Moody's.
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to each
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount outstanding not to
exceed at any time such Bank's Commitment to such Borrower, provided that the
aggregate amount of the Commitments of the Banks to any Borrower shall, except
for purposes of Section 2.03(a), be deemed used from time to time to the extent
of the aggregate amount of the B Advances then outstanding to such Borrower and
such deemed use of the aggregate amount of such Commitments shall be applied to
the Banks ratably according to their respective Commitments to such Borrower
(such deemed use of the aggregate amount of the Commitments of any Borrower
being a "B Reduction"), and provided further that the aggregate amount of all A
Advances to all Borrowers by any Bank shall not exceed at any time outstanding
such Bank's Commitment to TWC (determined after giving effect to such Bank's
ratable share of all B Reductions). Each A Borrowing shall be in an aggregate
amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, and shall consist of A Advances of the same Type made to the same
Borrower on the same day by the Banks ratably according to their respective
Commitments. Within the limits of each Bank's Commitment to a Borrower, such
Borrower may borrow, prepay pursuant to Section 2.10 and reborrow under this
Section 2.01.
Section 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than (1) in the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City
time) at least three Business Days prior to the date of the proposed Borrowing,
and (2) in the case of a proposed Borrowing comprised of Base Rate Advances,
10:00 A.M. (New York City time) on the date of the proposed Borrowing, by the
Borrower requesting such A Borrowing to the Agent, which shall give to each
Bank prompt notice thereof by telecopy, telex or cable. Each such notice of an
A Borrowing (a "Notice of A Borrowing") shall be by telecopy, telex or cable,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, executed by the Borrower requesting such A Borrowing and specifying
therein the requested (i) date of such A Borrowing (which shall be a Business
Day), (ii) initial Type of A Advances comprising such A Borrowing, (iii)
aggregate amount of such A Borrowing, and (iv) in the case of an A Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each such A
Advance. Each Bank shall, before 11:00 A.M. (New York City time) on the date
of such A Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section 8.02, in
same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will make such funds available to the
Borrower requesting such A Borrowing at the Agent's aforesaid address.
Notwithstanding the other provisions hereof, each Bank that is to be paid by
any Borrower on July 23, 1997, any principal amount outstanding under the 1996
Credit Agreement as contemplated by Section 8.14 shall apply the proceeds of
any Advance to be made by it to such Borrower on such date to pay such amount
and only an amount equal to the difference (if any) between the amount of such
Advance and the principal amount being so paid shall be made available by such
Bank to the Agent as provided herein, or remitted by such Borrower to the Agent
as provided in Section 2.13, as the case may be.
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(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to any one
Borrower more than six A Borrowings comprised of Eurodollar Rate Advances;
(ii) no Borrower may select Eurodollar Rate Advances for
any Borrowing if the aggregate amount of such Borrowing is less than (x)
if such Borrowing is made by WPL or WilTel, $5,000,000, and (y) if such
Borrowing is made by any other Borrower, $20,000,000;
(iii) if the Majority Banks shall notify the Agent that
either (A) the Eurodollar Rate for any Interest Period for any Eurodollar
Rate Advances will not adequately reflect the cost to such Banks of making
or funding their respective Eurodollar Rate Advances for such Interest
Period, or (B) that U.S. dollar deposits for the relevant amounts and
Interest Period for their respective Advances are not available to them in
the London interbank market, or it is otherwise impossible to have
Eurodollar Rate Advances, the Agent shall forthwith so notify the
Borrowers and the Banks, whereupon (I) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance, and (II) the obligations of
the Banks to make, or to Convert Advances into, Eurodollar Rate Advances
shall be suspended until the Agent, at the request of the Majority Banks,
shall notify the Borrowers and the Banks that the circumstances causing
such suspension no longer exist, and, except as provided in Section
2.02(b)(v), each Advance comprising any requested A Borrowing shall be a
Base Rate Advance;
(iv) if the Agent is unable to determine the Eurodollar
Rate for Eurodollar Rate Advances, the obligation of the Banks to make, or
to Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Agent shall notify the Borrowers and the Banks that the
circumstances causing such suspension no longer exist, and, except as
provided in Section 2.02(b)(v), each Advance comprising any requested A
Borrowing shall be a Base Rate Advance; and
(v) if a Borrower has requested a proposed A Borrowing
consisting of Eurodollar Rate Advances and as a result of circumstances
referred to in Section 2.02(b)(iii) or (iv) such A Borrowing would not
consist of Eurodollar Rate Advances, such Borrower may, by notice given
not later than 3:00 P.M. (New York City time) at least one Business Day
prior to the date such proposed A Borrowing would otherwise be made,
cancel such A Borrowing, in which case such A Borrowing shall be cancelled
and no Advances shall be made as a result of such requested A Borrowing,
but such Borrower shall indemnify the Banks in connection with such
cancellation as contemplated by Section 2.02(c).
(c) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrowers, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, such
Borrower shall indemnify each Bank against any loss, cost or expense incurred
by such Bank as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III,
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including, without limitation, any loss (including loss of reasonably
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the A
Advance to be made by such Bank as part of such A Borrowing when such A
Advance, as a result of such failure, is not made on such date. A certificate
in reasonable detail as to the basis for and the amount of such loss, cost or
expense submitted to such Borrower and the Agent by such Bank shall be prima
facie evidence of the amount of such loss, cost or expense. If an A Borrowing
requested by a Borrower which the related Notice of A Borrowing specifies is to
be comprised of Eurodollar Rate Advances is not made as an A Borrowing
comprised of Eurodollar Rate Advances as a result of Section 2.02(b), such
Borrower shall indemnify each Bank against any loss (excluding loss of
profits), cost or expense incurred by such Bank by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank prior to the time
such Bank is actually aware that such A Borrowing will not be so made to fund
the A Advance to be made by such Bank as part of such A Borrowing. A
certificate in reasonable detail as to the basis for and the amount of such
loss, cost or expense submitted to such Borrower and the Agent by such Bank
shall be prima facie evidence of the amount of such loss, cost or expense.
(d) Unless the Agent shall have received notice from a Bank
prior to the date of any A Borrowing to a Borrower that such Bank will not make
available to the Agent such Bank's ratable portion of such A Borrowing, the
Agent may assume that such Bank has made such portion available to the Agent on
the date of such A Borrowing in accordance with subsection (a) of this Section
2.02 and the Agent may, in reliance upon such assumption, make available to
such Borrower requesting such A Borrowing on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such ratable portion
available to the Agent, such Bank and such Borrower severally agree to repay to
the Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to such
Borrower until the date such amount is repaid to the Agent, at (i) in the case
of such Borrower, the interest rate applicable at the time to A Advances
comprising such A Borrowing and (ii) in the case of such Bank, the Federal
Funds Rate. If such Bank shall repay to the Agent such corresponding amount,
such amount so repaid shall constitute such Bank's A Advance as part of such A
Borrowing for purposes of this Agreement.
(e) The failure of any Bank to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the A Advance to be made by such other Bank on the date of any A
Borrowing.
Section 2.03. Fees.
(a) Commitment Fee. TWC agrees to pay to the Agent for the
account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.03(a), A Advances made to any Borrower shall be
considered to have been made to TWC, but B Advances to any Borrower shall not,
for purposes of this Section 2.03(a), be considered to be usage of any
Commitment) portion of such Bank's Commitment to TWC from the date hereof until
the Termination Date at a rate per annum from time to time equal to the
Applicable Commitment Fee Rate from time to time, payable in arrears on the
last day of each March, June,
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September and December during the term such Bank has any Commitment to any
Borrower and on the Termination Date.
(b) Agent's Fees. TWC agrees to pay to the Agent, for its sole
account, such fees as may be separately agreed to in writing by TWC and the
Agent.
Section 2.04. Reduction of the Commitments.
(a) Optional. Each Borrower shall have the right, upon at
least three Business Days notice to the Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective Commitments of the Banks
to such Borrower, provided that each partial reduction shall be in the
aggregate amount of at least $20,000,000, and provided further, that the
aggregate amount of the Commitments of the Banks to any Borrower shall not be
reduced to an amount which is less than the aggregate principal amount of the
Advances then outstanding to such Borrower, and provided further, that the
aggregate amount of the Commitments of the Banks to TWC shall not be reduced to
an amount which is less than the aggregate principal amount of the Advances
then outstanding to the Borrower as to which the aggregate outstanding
principal amount of Advances is then the largest.
(b) Termination. If all of the Commitments of the Banks to a
Borrower (other than TWC) are terminated pursuant to Section 2.04(a) and such
Borrower has paid all principal, interest, fees, costs and other amounts owed
by it hereunder and under the Notes executed by it, such Borrower shall have
the right, upon at least three Business Days notice to the Agent, to elect to
cease to be a Borrower hereunder, except for purposes of the definition herein
of Majority Banks and for purposes of Sections 2.11, 2.14 and 8.04.
Section 2.05. Repayment of A Advances. Each Borrower shall
repay, on the Stated Termination Date or such earlier date as the Notes may be
declared due pursuant to Article VI, the unpaid principal amount of each A
Advance made by each Bank to such Borrower.
Section 2.06. Interest on A Advances. Each Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Bank to
such Borrower from the date of such A Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance is a
Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the last day of
each March, June, September and December and on the date such Advance
shall be Converted or paid in full; provided that any amount of principal
of any Base Rate Advance, interest, fees and other amounts payable
hereunder (other than principal of any Eurodollar Rate Advance) which is
not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount is due
until such amount is paid in full, payable on demand, at a rate per annum
equal at all times to the sum of the Base Rate in effect from time to time
plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all times
during each Interest Period
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for such A Advance to the sum of the Eurodollar Rate for such Interest
Period plus the Applicable Margin in effect from time to time for such A
Advance, payable on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day
which occurs during such Interest Period every three months from the first
day of such Interest Period; provided that any amount of principal of any
Eurodollar Rate Advance which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date
on which such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x) the
sum of the Base Rate in effect from time to time plus 2% per annum and (y)
the sum of the rate per annum required to be paid on such A Advance
immediately prior to the date on which such amount became due plus 2% per
annum.
Section 2.07. Additional Interest on Eurodollar Rate Advances.
Each Borrower shall pay to each Bank, so long as such Bank shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Eurodollar Rate Advance of such Bank to such Borrower, from the
date of such Advance until such principal amount is paid in full, at an
interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for the Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest shall be determined by such Bank and
notified to such Borrower through the Agent. A certificate as to the amount of
such additional interest submitted to such Borrower and the Agent by such Bank
shall be conclusive and binding for all purposes, absent manifest error. No
Bank shall have the right to recover any additional interest pursuant to this
Section 2.07 for any period more than 90 days prior to the date such Bank
notifies the Borrowers that additional interest may be charged pursuant to this
Section 2.07.
Section 2.08. Interest Rate Determination. The Agent shall give
prompt notice to the Borrower to which an A Advance is made and the Banks of
the applicable interest rate for each Eurodollar Rate Advance determined by the
Agent for purposes of Section 2.06(b).
Section 2.09. Evidence of Debt. The indebtedness of each
Borrower resulting from the A Advances owed to each Bank by such Borrower shall
be evidenced by an A Note of such Borrower payable to the order of such Bank.
Section 2.10. Prepayments.
(a) No Borrower shall have any right to prepay any principal
amount of any A Advance except as provided in this Section 2.10.
(b) Any Borrower may, in respect of Base Rate Advances upon
notice to the Agent before 10:00 A.M. (New York City time) on the date of
prepayment, and in respect of Eurodollar Rate Advances upon at least three
Business Days' notice to the Agent, in each case stating the proposed date
(which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of the A Advances comprising part of the same A
Borrowing in whole or ratably in part,
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<PAGE> 24
together with accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to Section
8.04(b) as a result of such prepayment; provided, however, that each partial
prepayment pursuant to this Section 2.10(b) shall be in an aggregate principal
amount not less than $5,000,000 and in an aggregate principal amount such that
after giving effect thereto no A Borrowing comprised of Base Rate Advances
shall have a principal amount outstanding of less than $5,000,000 and no A
Borrowing comprised of Eurodollar Rate Advances shall have a principal amount
outstanding of less than (i) if such A Borrowing was made by WPL or WilTel,
$5,000,000, and (ii) if such A Borrowing was made by any other Borrower,
$20,000,000.
(c) Each Borrower will give notice to the Agent at or before
the time of each prepayment by such Borrower of Advances pursuant to this
Section 2.10 specifying the Advances which are to be prepaid and the amount of
such prepayment to be applied to such Advances, and each payment of any Advance
pursuant to this Section 2.10 or any other provision of this Agreement shall be
made in a manner such that all Advances comprising part of the same Borrowing
are paid in whole or ratably in part.
Section 2.11. Increased Costs.
(a) If, due to either (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements
included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation, application or applicability of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances to any Borrower, then such Borrower shall
from time to time, upon demand by such Bank (with a copy of such demand to the
Agent), pay to the Agent for the account of such Bank additional amounts
sufficient to compensate such Bank for such increased cost. A certificate as
to the amount of such increased cost, submitted to such Borrower and the Agent
by such Bank, shall be prima facie evidence of the amount of such increased
cost. No Bank shall have the right to recover any such increased costs for any
period more than 90 days prior to the date such Bank notifies the Borrowers of
any such introduction, change, compliance or proposed compliance.
(b) If any Bank determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's commitment
to lend to any Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), such
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend hereunder. A
certificate as to the amount of such additional amounts, submitted to such
Borrower and the Agent by such Bank, shall be prima facie evidence of the
amount of such additional amounts. No Bank shall have any right to recover any
additional amounts under this Section 2.11(b) for any period more than 90 days
prior to the date such Bank notifies the Borrowers of any such compliance.
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(c) In the event that any Bank makes a demand for payment
under Section 2.07 or this Section 2.11, TWC may within ninety days of such
demand, if no Event of Default or event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.06(a) (including execution of an
appropriate Transfer Agreement) provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and the Notes payable to such Bank and
all other obligations owed to such Bank hereunder shall be purchased in full
without recourse at par plus accrued interest at or prior to such replacement,
(ii) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (iii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment to each Borrower in the amount of the respective Commitment of such
Bank to such Borrower immediately prior to such replacement (plus, if such
replacement bank is already a Bank prior to such replacement the respective
Commitment of such Bank to such Borrower prior to such replacement), as such
amount may be changed from time to time pursuant hereto, and shall have all of
the rights, duties and obligations hereunder of the Bank being replaced, and
(iv) such other actions shall be taken by the Borrowers, such Bank and such
replacement bank as may be appropriate to effect the replacement of such Bank
with such replacement bank on terms such that such replacement bank has all of
the rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of new Notes of each Borrower to such
replacement bank, redelivery to each Borrower in due course of the Notes of
such Borrower payable to such Bank and specification of the information
contemplated by Schedule I as to such replacement bank).
Section 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Bank shall notify the Agent that the introduction of
or any change in or in the interpretation of any law or regulation shall make
it unlawful, or that any central bank or other governmental authority shall
assert that it is unlawful, for any Bank or its Eurodollar Lending Office to
perform its obligations hereunder to make, or Convert a Base Rate Advance into,
a Eurodollar Rate Advance or to continue to fund or maintain any Eurodollar
Rate Advance, then, on notice thereof to the Borrowers by the Agent, (i) the
obligation of each of the Banks to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent, at the request of
the Majority Banks, shall notify the Borrowers and the Banks that the
circumstances causing such suspension no longer exist, and (ii) the Borrowers
shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then
outstanding together with all accrued interest thereon and all amounts payable
pursuant to Section 8.04(b), unless each Bank shall determine in good faith in
its sole opinion that it is lawful to maintain the Eurodollar Rate Advances
made by such Bank to the end of the respective Interest Periods then applicable
thereto or unless the Borrowers, within five Business Days of notice from the
Agent, Convert all Eurodollar Rate Advances of all Banks then outstanding into
Base Rate Advances in accordance with Section 2.19.
Section 2.13. Payments and Computations.
(a) Each Borrower shall make each payment hereunder and
under the Notes to be made by it not later than 11:00 A.M. (New York City time)
on the day when due in U.S. dollars to the Agent at its New York address
referred to in Section 8.02 in same day funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest or commitment fees ratably (other than amounts payable
pursuant to Section 2.07, 2.11, 2.14, 2.16 or 8.04(b)) to the Banks for the
account of their respective Applicable
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Lending Offices, and like funds relating to the payment of any other amount
payable to any Bank to such Bank for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement. In no event shall any Bank be entitled to share any fee paid to the
Agent pursuant to Section 2.03(b), any auction fee paid to the Agent pursuant
to Section 2.16(a)(i) or any other fee paid to the Agent, as such.
(b) Each Borrower hereby authorizes each Bank, if and to the
extent payment owed to such Bank by such Borrower is not made when due
hereunder or under any Note of such Borrower held by such Bank, to charge from
time to time against any or all of such Borrower's accounts with such Bank any
amount so due.
(c) All computations of interest based on clause (a) or
clause (b) of the definition herein of Base Rate and of commitment fees shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made by
the Agent, and all computations of interest pursuant to Section 2.07 shall be
made by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or commitment fees are payable. Each
determination by the Agent (or, in the case of Section 2.07, by a Bank) of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided, however, if such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.
(e) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due by such Borrower to any
Bank hereunder that such Borrower will not make such payment in full, the Agent
may assume that such Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank hereunder. If and to the extent such Borrower shall not have so
made such payment in full to the Agent, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the Federal Funds
Rate.
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Section 2.14. Taxes.
(a) Any and all payments by any Borrower hereunder or under
the Notes shall be made, in accordance with Section 2.13, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings with respect thereto, and all liabilities
with respect thereto, excluding in the case of each Bank and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank or the Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If any Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes executed by it or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or such Notes
(hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) owed and paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within 30 days from
the date such Bank or the Agent (as the case may be) makes written demand
therefor.
(d) Within 30 days after the date of the payment of Taxes by
or at the direction of any Borrower, such Borrower will furnish to the Agent,
at its address referred to in Section 8.02, the original or a certified copy of
a receipt evidencing payment thereof. Should any Bank or the Agent ever
receive any refund, credit or deduction from any taxing authority to which such
Bank or the Agent would not be entitled but for the payment by a Borrower of
Taxes as required by this Section 2.14 (it being understood that the decision
as to whether or not to claim, and if claimed, as to the amount of any such
refund, credit or deduction shall be made by such Bank or the Agent, as the
case may be, in its sole discretion), such Bank or the Agent, as the case may
be, thereupon shall repay to such Borrower an amount with respect to such
refund, credit or deduction equal to any net reduction in taxes actually
obtained by such Bank or the Agent, as the case may be, and determined by such
Bank or the Agent, as the case may be, to be attributable to such refund,
credit or deduction.
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(e) Without prejudice to the survival of any other agreement
of the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 2.14 shall survive the payment in full of principal
and interest hereunder and under the Notes.
Section 2.15. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary or involuntary, or through the exercise
of any right of set-off or otherwise) on account of the A Advances made by it
(other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(b)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the A Advances owed to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such Bank's ratable share (according to the
proportion of (i) the amount of the participation purchased from such Bank as a
result of such excess payment to (ii) the total amount of such excess payment)
of such recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing Bank in respect
of the total amount so recovered. Each Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section 2.15 may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
Section 2.16. The B Advances.
(a) Each Bank severally agrees that each Borrower may make B
Borrowings under this Section 2.16 from time to time on any Business Day during
the period from the date hereof until the earlier of (I) the Termination Date
or (II) the date occurring 30 days prior to the Stated Termination Date in the
manner set forth below; provided that, following the making of each B
Borrowing, the aggregate amount of the Advances then outstanding to such
Borrower shall not exceed the aggregate amount of the Commitments of the Banks
to such Borrower (computed without regard to any B Reduction) and the aggregate
amount of all Advances then outstanding shall not exceed the aggregate amount
of the Commitments of the Banks to TWC (computed without regard to any B
Reduction).
(i) A Borrower may request a B Borrowing under this Section
2.16 by delivering to the Agent, by telecopier, telex or cable, confirmed
immediately in writing, a notice of a B Borrowing (a "Notice of B
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
the date and aggregate amount of the proposed B Borrowing, the maturity
date for repayment of each B Advance to be made as part of such B
Borrowing (which maturity date may not be earlier than the date occurring
14 days after the date of such B Borrowing or later than the earlier of
(x) 6 months after the date of such B Borrowing or (y) the Stated
Termination Date), the interest payment date or dates relating thereto,
and any other terms to be applicable to such B Borrowing (including,
without limitation, the basis to be used by the Banks in determining the
rate or rates of interest to be offered by them as provided in paragraph
(ii) below and prepayment terms, if any, but excluding any waiver or other
modification to any of the
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<PAGE> 29
conditions set forth in Article III), not later than 10:00 A.M. (New York
City time) (A) at least one Business Day prior to the date of the proposed
B Borrowing, if such Borrower shall specify in the Notice of B Borrowing
that the rates of interest to be offered by the Banks shall be fixed rates
per annum and (B) at least five Business Days prior to the date of the
proposed B Borrowing, if such Borrower shall instead specify in the Notice
of B Borrowing the basis to be used by the Banks in determining the rates
of interest to be offered by them. The Agent shall in turn promptly
notify each Bank of each request for a B Borrowing received by it from a
Borrower by sending such Bank a copy of the related Notice of B Borrowing.
Each time that a Borrower gives a Notice of B Borrowing, such Borrower
shall pay to the Agent an auction fee equal to $2000.
(ii) Each Bank may, if in its sole discretion it elects to do
so, irrevocably offer to make one or more B Advances to a Borrower as part
of such proposed B Borrowing at a rate or rates of interest specified by
such Bank in its sole discretion, by notifying the Agent (which shall give
prompt notice thereof to such Borrower), before 10:00 A.M. (New York City
time) (x) on the date of such proposed B Borrowing, in the case of a
Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i)
above, and (y) three Business Days before the date of such proposed B
Borrowing in the case of a Notice of B Borrowing delivered pursuant to
clause (B) of paragraph (i) above, of the minimum amount and maximum
amount of each B Advance which such Bank would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.16(a), exceed such Bank's Commitment
to such Borrower), the rate or rates of interest therefor and such Bank's
Applicable Lending Office with respect to such B Advance; provided that if
the Agent in its capacity as a Bank shall, in its sole discretion, elect
to make any such offer, it shall notify such Borrower of such offer before
9:45 A.M. (New York City time) on the date on which notice of such
election is to be given to the Agent by the other Banks. If any Bank
shall elect not to make such an offer, such Bank shall so notify the
Agent, before 10:00 A.M. (New York City time) on the date on which notice
of such election is to be given to the Agent by the other Banks, and such
Bank shall not be obligated to, and shall not, make any B Advance as part
of such B Borrowing; provided that the failure by any Bank to give such
notice shall not cause such Bank to be obligated to make any B Advance as
part of such proposed B Borrowing.
(iii) The Borrower requesting such proposed B Borrowing shall,
in turn, before 11:00 A.M. (New York City time) (x) on the date of such
proposed B Borrowing in the case of a Notice of B Borrowing delivered
pursuant to clause (A) of paragraph (i) above and (y) three Business Days
before the date of such proposed B Borrowing in the case of a Notice of B
Borrowing delivered pursuant to clause (B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent
notice to that effect, or
(B) accept one or more of the offers made by any
Bank or Banks pursuant to paragraph (ii) above, in order of the
lowest to highest rates of interest or margins (or, if two or
more Banks bid at the same rates of interest, and the amount of
accepted offers is less than the aggregate amount of such offers,
the amount to be borrowed from such Banks as part of such B
Borrowing shall be
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allocated among such Banks pro rata on the basis of the maximum
amount offered by such Banks at such rates or margin in
connection with such B Borrowing), in any aggregate amount up to
the aggregate amount initially requested by such Borrower in the
relevant Notice of B Borrowing, by giving notice to the Agent of
the amount of each B Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the
maximum amount, notified to such Borrower by the Agent on behalf
of such Bank for such B Advance pursuant to paragraph (ii) above)
to be made by each Bank as part of such B Borrowing, and reject
any remaining offers made by Banks pursuant to paragraph (ii)
above by giving the Agent notice to that effect.
(iv) If the Borrower requesting such B Borrowing notifies the
Agent that such B Borrowing is cancelled pursuant to paragraph (iii)(A)
above, the Agent shall give prompt notice thereof to the Banks and such B
Borrowing shall not be made.
(v) If the Borrower requesting such B Borrowing accepts one
or more of the offers made by any Bank or Banks pursuant to paragraph
(iii)(B) above, the Agent shall in turn promptly notify (A) each Bank that
has made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Bank pursuant to paragraph (ii) above have been
accepted by such Borrower, (B) each Bank that is to make a B Advance as
part of such B Borrowing, of the amount of each B Advance to be made by
such Bank as part of such B Borrowing, and (C) each Bank that is to make a
B Advance as part of such B Borrowing, upon receipt, that the Agent has
received forms of documents appearing to fulfill the applicable conditions
set forth in Article III. Each Bank that is to make a B Advance as part
of such B Borrowing shall, before 12:00 noon (New York City time) on the
date of such B Borrowing specified in the notice received from the Agent
pursuant to clause (A) of the preceding sentence or any later time when
such Bank shall have received notice from the Agent pursuant to clause (C)
of the preceding sentence, make available for the account of its
Applicable Lending Office to the Agent at its New York address referred to
in Section 8.02 such Bank's portion of such B Borrowing, in same day
funds. Upon fulfillment of the applicable conditions set forth in Article
III and after receipt by the Agent of such funds, the Agent will make such
funds available to such Borrower at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Bank of the
amount of the B Borrowing, the Borrower to which such B Borrowing was
made, the consequent B Reduction and the dates upon which such B Reduction
commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of not
less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof. Each Borrower agrees that it will not request a B Borrowing
unless, upon the making of such B Borrowing, the limitations set forth in
the proviso to the first sentence of Section 2.16(a) are complied with.
(c) Within the limits and on the conditions set forth in this
Section 2.16, each Borrower may from time to time borrow under this
Section 2.16, repay or prepay pursuant to subsection (d) below, and
reborrow under this Section 2.16, provided that a
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B Borrowing shall not be made by any Borrower within three Business Days
of the date of another B Borrowing to such Borrower.
(d) Each Borrower shall repay to the Agent for the account of
each Bank which has made a B Advance to such Borrower, or each other
holder of a B Note of such Borrower, on the maturity date of each B
Advance made to such Borrower (such maturity date being that specified by
such Borrower for repayment of such B Advance in the related Notice of B
Borrowing delivered pursuant to subsection (a)(i) above and provided in
the B Note evidencing such B Advance) the then unpaid principal amount of
such B Advance. No Borrower shall have any right to prepay any principal
amount of any B Advance unless, and then only on the terms, specified by
such Borrower for such B Advance in the related Notice of B Borrowing
delivered pursuant to subsection (a)(i) above and set forth in the B Note
evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid principal
amount of each B Advance made to such Borrower from the date of such B
Advance to the date the principal amount of such B Advance is repaid in
full, at the rate of interest for such B Advance specified by the Bank
making such B Advance in its notice with respect thereto delivered
pursuant to subsection (a)(ii) above, payable on the interest payment date
or dates specified by such Borrower for such B Advance in the related
Notice of B Borrowing delivered pursuant to subsection (a)(i) above, as
provided in the B Note evidencing such B Advance.
(f) The indebtedness of each Borrower resulting from each B
Advance made to such Borrower as part of a B Borrowing shall be evidenced
by a separate B Note of such Borrower payable to the order of the Bank
making such B Advance.
(g) The failure of any Bank to make the B Advance to be made
by it as part of any B Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its B Advance on the date of such B
Borrowing, but no Bank shall be responsible for the failure of any other
Bank to make the B Advance to be made by such other Bank on the date of
any B Borrowing.
Section 2.17. Optional Termination. Notwithstanding anything to
the contrary in this Agreement, if (v) any Person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of TWC or of
any Subsidiary of TWC) or two or more Persons acting in concert (other than any
group of employees of TWC or of any of its Subsidiaries) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of securities of TWC (or other securities convertible into such
securities) representing 20% or more of the combined voting power of all
securities of TWC entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency,
or (vi) during any period of up to 24 consecutive months, commencing before or
after the date of this Agreement, individuals who at the beginning of such
24-month period were directors of TWC or who were elected by individuals who at
the beginning of such period were such directors or by individuals elected in
accordance with this clause (ii) shall cease for any reason to constitute a
majority of the board of directors of TWC, or (vii) any Person (other than TWC
or a Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert
shall have acquired by
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<PAGE> 32
contract or otherwise, or shall have entered into a contract or arrangement
which upon consummation will result in its or their acquisition of, the power
to exercise, directly or indirectly, a controlling influence over the
management or policies of any Borrower; then the Agent shall at the request, or
may with the consent, of the holders of at least 66-2/3% in principal amount of
the A Notes then outstanding or, if no A Notes are then outstanding, Banks
having at least 66-2/3% of the Commitments, by notice to the Borrowers, declare
all of the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and no Borrower shall have any further right to borrow
hereunder.
Section 2.18. Extension of Termination Date. By notice given to
the Agent and the Banks, at least thirty days but not more than forty-five days
before July 1 of any year after 2000, the Borrowers may request the Banks to
extend the Stated Termination Date for an additional year to a date which is an
anniversary date of the Stated Termination Date. Within thirty days after
receipt of such request, each Bank that agrees, in its sole and absolute
discretion, to so extend the Stated Termination Date shall notify the Borrowers
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section 2.19. Voluntary Conversion of Advances. Any Borrower
may on any Business Day, if no Event of Default then exists as to such
Borrower, upon notice (which shall be irrevocable) given to the Agent not later
than 11:00 A.M. (x) in the case of a proposed Conversion into Eurodollar Rate
Advances, on the third Business Day prior to the date of the proposed
conversion, and (y) in the case of a proposed Conversion into Base Rate
Advances, on the date of the proposed Conversion, and subject to the provisions
of Sections 2.02 and 2.12, Convert all Advances of one Type comprising the same
A Borrowing into Advances of the other Type; provided that (i) no Conversion of
any Eurodollar Rate Advances shall occur on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, except as contemplated by
Section 2.12, and (ii) Advances may not be Converted into Eurodollar Rate
Advances if the aggregate unpaid principal amount of the Advances is less than
$20,000,000. Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the A Advances
to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances,
the duration of the Interest Period for each such Advance.
Section 2.20. Automatic Provisions.
(a) If any Borrower shall fail to select the duration of any
Interest Period for Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent
will forthwith so notify such Borrower and the Banks, and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal
amount of the Eurodollar Rate Advances of any Borrower shall be reduced to less
than $20,000,000, all of such Eurodollar Rate Advances shall automatically
Convert into Base Rate Advances.
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<PAGE> 33
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance on or after the date hereof
is subject to the condition precedent that the Agent shall have received on or
before the date hereof, each dated on or before such date, in form and
substance satisfactory to the Agent and (except for the Notes) in sufficient
copies for each Bank:
(a) The A Notes executed severally by each of the respective
Borrowers to the order of each of the respective Banks and this Agreement
executed by the Borrowers.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of each Borrower
authorizing the execution of this Agreement and the Notes to be executed
by such Borrower.
(c) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying (i) all changes, if any, that have been made
to the Certificate of Incorporation or Bylaws of such Borrower on or after
June 15, 1995, and (ii) the names and true signatures of the officers of
such Borrower authorized to sign this Agreement, Notices of A Borrowing,
Notices of B Borrowing and the Notes to be executed by such Borrower and
any other documents to be delivered hereunder by such Borrower.
(d) An opinion of William G. von Glahn, General Counsel of
TWC, substantially in the form of Exhibit C hereto and as to such other
matters as any Bank through the Agent may reasonably request.
(e) An opinion of Bracewell & Patterson, L.L.P., special
counsel to the Agent, substantially in the form of Exhibit D hereto.
(f) A certificate of an officer of each Borrower (other than
WPL and WilTel) stating the respective ratings by each of S&P and Moody's
of the senior unsecured long-term debt of such Borrower as in effect on
the date of this Agreement; a certificate of an officer of WPL stating
(and showing the calculation of) the WPL Debt to TNW Ratio as of March 31,
1997; and a certificate of an officer of WilTel stating (and showing the
calculation of) the WilTel Debt to EBITDA Ratio as of March 31, 1997.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance to a Borrower on
the occasion of any A Borrowing (including the initial A Borrowing) shall be
subject to the further conditions precedent that on the date of such A
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of A Borrowing and the acceptance by such Borrower of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in Section
4.01 pertaining to such Borrower and its Subsidiaries are correct in all
material respects on and as of the
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date of such A Borrowing, before and after giving effect to such A
Borrowing and to the application of the proceeds therefrom, as though made
on and as of such date,
(ii) No event has occurred and is continuing, or would result
from such A Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both, and
(iii) After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but which
have not been made prior to such date, the aggregate principal amount of
all Advances will not exceed the aggregate of the Commitments of the Banks
to TWC (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Bank which is to make a B Advance to a Borrower on the
occasion of a B Borrowing (including the initial B Borrowing) to make such B
Advance as part of such B Borrowing is subject to the further conditions
precedent that (i) at or before the time required by paragraph (iii) of Section
2.16(a), the Agent shall have received the written confirmatory notice of such
B Borrowing contemplated by such paragraph, (ii) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall have received a B
Note executed by such Borrower payable to the order of such Bank for each of
the one or more B Advances to be made by such Bank as part of such B Borrowing,
in a principal amount equal to the principal amount of the B Advance to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.16, and (iii) on the date of such B
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by such Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in Section
4.01 pertaining to such Borrower and its Subsidiaries are correct on and
as of the date of such B Borrowing, before and after giving effect to such
B Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date,
(2) No event has occurred and is continuing, or would result
from such B Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both,
(3) Following the making of such B Borrowing and all other
Borrowings to be made on the same day to such Borrower under this
Agreement, the aggregate principal amount of all Advances to such Borrower
then outstanding will not exceed the aggregate amount of the Commitments
to such Borrower (computed without regard to any B Reduction), and
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<PAGE> 35
(4) After giving effect to such B Borrowing and all other
Borrowings which have been requested on or prior to such date but which
have not been made prior to such date, the aggregate principal amount of
all Advances will not exceed the aggregate of the Commitments of the Banks
to TWC (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as to itself and its Subsidiaries as
follows:
(a) Each Borrower is duly organized or validly formed,
validly existing and (if applicable) in good standing under the laws of
the State of Delaware and has all corporate or limited liability company
powers and all governmental licenses, authorizations, certificates,
consents and approvals required to carry on its business as now conducted
in all material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operation of such Borrower and its Subsidiaries taken
as a whole. Each Subsidiary of each Borrower is duly organized or validly
formed, validly existing and (if applicable) in good standing under the
laws of its jurisdiction of incorporation or formation, except where the
failure to be so organized, existing and in good standing could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operations of such Borrower and its Subsidiaries
taken as a whole. Each Subsidiary of a Borrower has all corporate powers
and all governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all
material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operation of such Borrower and its Subsidiaries taken
as a whole.
(b) The execution, delivery and performance by each Borrower
of this Agreement and the Notes and the consummation of the transactions
contemplated by this Agreement are within such Borrower's corporate or
limited liability company powers, have been duly authorized by all
necessary corporate or limited liability company action, do not contravene
(i) such Borrower's charter, by-laws, or formation agreement, or (ii) law
or any contractual restriction binding on or affecting such Borrower and
will not result in or require the creation or imposition of any Lien
prohibited by this Agreement. At the time of each borrowing of any
Advance by a Borrower, such borrowing and the use of the proceeds of such
Advance will be within such Borrower's corporate or limited liability
company powers, will have been duly authorized by all necessary corporate
or limited liability company action, will not contravene (i) such
Borrower's charter, by-laws, or formation agreement, or (ii) law or any
contractual restriction binding on or affecting such Borrower and will not
result in or require the creation or imposition of any Lien prohibited by
this Agreement.
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<PAGE> 36
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by any Borrower
of this Agreement or the Notes or the consummation of the transactions
contemplated by this Agreement. At the time of each borrowing of any
Advance by a Borrower, no authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory
body will be required for such borrowing or the use of the proceeds of
such Advance.
(d) This Agreement has been duly executed and delivered by
each Borrower. This Agreement is the legal, valid and binding obligation
of each Borrower enforceable against each Borrower in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and by general principles of equity.
The A Notes of each Borrower are, and when executed the B Notes of such
Borrower will be, the legal, valid and binding obligations of such
Borrower enforceable against such Borrower in accordance with their
respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally and by general principles of
equity.
(e) (i) The Consolidated and consolidating balance sheets of
TWC and its Subsidiaries as at December 31, 1996, and the related
Consolidated and consolidating statements of income and cash flows of TWC
and its Subsidiaries for the fiscal year then ended, copies of which have
been furnished to each Bank, and the Consolidated and consolidating
balance sheets of TWC and its Subsidiaries as at March 31, 1997, and the
related Consolidated and consolidating statements of income and cash flows
of TWC and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TWC, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheets as at March 31, 1997, and such statements of income and
cash flows for the three months then ended, to year-end audit adjustments,
the Consolidated and consolidating financial condition of TWC and its
Subsidiaries as at such dates and the Consolidated and consolidating
results of operations of TWC and its Subsidiaries for the year and three
month period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
March 31, 1997, there has been no material adverse change in the condition
or operations of TWC or its Subsidiaries.
(ii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1996, and March 31, 1997, referred to in
Section 4.01(e)(i), and the related consolidating statements of income and
cash flows of TWC and its Subsidiaries for the fiscal year and three
months, respectively, then ended referred to in Section 4.01(e)(i), to the
extent such balance sheets and statements pertain to NWP, fairly present
(subject, in the case of such balance sheet as at March 31, 1997 and such
statements of income and cash flows for the three months then ended, to
year-end audit adjustments) the Consolidated financial condition of NWP
and its Subsidiaries as at such dates and the Consolidated results of
operations of NWP and its Subsidiaries for the year and three month
period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
March 31, 1997, there has been no material adverse change in the condition
or operations of NWP or its Subsidiaries.
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<PAGE> 37
(iii) The Consolidated balance sheet of WPL and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of WPL and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of WPL and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of WPL and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of WPL, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of WPL and its Subsidiaries as at such
dates and the Consolidated results of operations of WPL and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of WPL or its
Subsidiaries.
(iv) The Consolidated balance sheet of TGPL and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of TGPL and its Subsidiaries as at
March 31, 1997, and the related Consolidated statement of income and cash
flows of TGPL and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TGPL, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGPL and its Subsidiaries as at such
dates and the Consolidated results of operations of TGPL and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of TGPL or its
Subsidiaries.
(v) The Consolidated balance sheet of TGT and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of TGT and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of TGT and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of TGT and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TGT, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGT and its Subsidiaries as at such
dates and the Consolidated results of operations of TGT and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of TGT or its
Subsidiaries.
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<PAGE> 38
(vi) The Consolidated balance sheet of WHD and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of WHD and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of WHD and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of WHD and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of WHD, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of WHD and its Subsidiaries as at such
dates and the Consolidated results of operations of WHD and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of WHD or its
Subsidiaries.
(vii) The Consolidated balance sheet of Williams
Telecommunications Systems, Inc. ("WTS"), a predecessor of WilTel, as at
December 31, 1996, and the related Consolidated statement of income and
cash flows of WTS for the fiscal year then ended, copies of which have
been furnished to each Bank, and the Consolidated balance sheet of WTS as
at March 31, 1997, and the related Consolidated statement of income and
cash flows of WTS for the three months then ended, duly certified by an
authorized financial officer of WTS, copies of which have been furnished
to each Bank, fairly present, subject, in the case of such balance sheet
as at March 31, 1997, and such statement of income and cash flows for the
three months then ended, to year-end audit adjustments, the Consolidated
financial condition of WTS as at such dates and the Consolidated results
of operations of WTS for the year and three month period, respectively,
ended on such dates, all in accordance with generally accepted accounting
principles consistently applied. From March 31, 1997, to April 30, 1997,
there was no material adverse change in the condition or operations of
WTS, which was merged into WilTel on April 30, 1997. Since May 1, 1997,
there has been no material adverse change in the condition or operations
of WilTel.
(f) Except as set forth in the Public Filings or as otherwise
disclosed in writing by a Borrower to the Banks and the Agent after the
date hereof and approved by the Majority Banks, there is, as to each
Borrower, no pending or, to the knowledge of such Borrower, threatened
action or proceeding affecting such Borrower or any Subsidiary of such
Borrower before any court, governmental agency or arbitrator, which could
reasonably be expected to materially and adversely affect the financial
condition or operations of such Borrower and its Subsidiaries taken as a
whole or which purports to affect the legality, validity, binding effect
or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance will be used for any purpose
or in any manner not permitted by Section 5.02(k).
(h) No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of any
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Advance will be used to purchase or carry any such margin stock (other
than purchases of common stock expressly permitted by Section 5.02(k)) or
to extend credit to others for the purpose of purchasing or carrying any
such margin stock. Following the application of the proceeds of each
Advance, not more than 25% of the value of the assets of any Borrower will
be represented by such margin stock and not more than 25% of the value of
the assets of any Borrower and its Subsidiaries will be represented by
such margin stock.
(i) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan for which an Insufficiency
exists. No Borrower nor any ERISA Affiliate of any Borrower has received
any notification that any Multiemployer Plan is in reorganization or has
been terminated, within the meaning of Title IV of ERISA, and no Borrower
is aware of any reason to expect that any Multiemployer Plan is to be in
reorganization or to be terminated within the meaning of Title IV of
ERISA.
(k) As of the date of this Agreement, the United States
federal income tax returns of each Borrower (other than WHD and WilTel)
and the material Subsidiaries of each Borrower (other than Subsidiaries
not in existence on December 31, 1989) have been examined through the
fiscal year ended December 31, 1989. Each Borrower and the Subsidiaries
of each Borrower have filed all United States Federal income tax returns
and all other material domestic tax returns which are required to be filed
by them and have paid, or provided for the payment before the same become
delinquent of, all taxes due pursuant to such returns or pursuant to any
assessment received by any Borrower or any such Subsidiary, other than
those taxes contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of each Borrower and the
material Subsidiaries of each Borrower in respect of taxes are adequate.
(l) No Borrower is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company," or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(m) Except as set forth in the Public Filings or as otherwise
disclosed in writing by a Borrower to the Banks and the Agent after the
date hereof and approved by the Majority Banks, the Borrowers and their
respective material Subsidiaries are in compliance in all material
respects with all Environmental Protection Statutes to the extent material
to their respective operations or financial condition. Except as set
forth in the Public Filings or as otherwise disclosed in writing by a
Borrower to the Banks and the Agent after the date hereof and approved by
the Majority Banks, the aggregate contingent and non-contingent
liabilities of each Borrower and its Subsidiaries (other than those
reserved for in accordance with generally accepted accounting principles
and set forth in the financial statements regarding such Borrower referred
to in Section 4.01(e) and delivered to each Bank) which are reasonably
expected to arise in connection with (i) the requirements of Environmental
Protection Statutes or (ii) any obligation or liability to any
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Person in connection with any Environmental matters (including, without
limitation, any release or threatened release (as such terms are defined
in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980) of any Hazardous Waste, Hazardous Substance, other waste,
petroleum or petroleum products into the Environment) does not exceed 10%
of the Consolidated Tangible Net Worth of such Borrower (excluding
liabilities to the extent covered by insurance if the insurer has
confirmed that such insurance covers such liabilities or which such
Borrower reasonably expects to recover from ratepayers).
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
each Borrower will, unless the Majority Banks shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (except where failure to comply could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operations of such Borrower and its Subsidiaries taken as
a whole), such compliance to include, without limitation, the payment and
discharge before the same become delinquent of all taxes, assessments and
governmental charges or levies imposed upon it or any of its Subsidiaries or
upon any of its property or any property of any of its Subsidiaries, and all
lawful claims which, if unpaid, might become a Lien upon any property of it or
any of its Subsidiaries, provided that no Borrower nor any Subsidiary of a
Borrower shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings and with
respect to which reserves in conformity with generally accepted accounting
principles, if required by such principles, have been provided on the books of
such Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the Banks:
(i) as soon as possible and in any event within five
days after the occurrence of each Event of Default or each event
which, with the giving of notice or lapse of time or both, would
constitute an Event of Default, continuing on the date of such
statement, a statement of an authorized financial officer of such
Borrower setting forth the details of such Event of Default or
event and the actions, if any, which such Borrower has taken and
proposes to take with respect thereto;
(ii) as soon as available and in any event not later
than 60 days after the end of each of the first three quarters of
each fiscal year of such Borrower, the Consolidated balance
sheets of such Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated statements of income and cash
flows of such Borrower and its Subsidiaries for the period
commencing at the end of the previous year and ending with the
end of such quarter, all in reasonable detail and
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duly certified (subject to year-end audit adjustments) by an
authorized financial officer of such Borrower as having been
prepared in accordance with generally accepted accounting
principles, together with a certificate of said officer (a)
stating that he has no knowledge that an Event of Default, or an
event which, with notice or lapse of time or both, would
constitute an Event of Default has occurred and is continuing or,
if an Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof and the action,
if any, which such Borrower proposes to take with respect
thereto, and (b) showing in detail the calculation supporting
such statement in respect of Section 5.02(b);
(iii) as soon as available and in any event not later
than 105 days after the end of each fiscal year of such Borrower,
a copy of the annual audit report for such year for such Borrower
and its Subsidiaries, including therein Consolidated balance
sheets of such Borrower and its Subsidiaries as of the end of
such fiscal year and Consolidated statements of income and cash
flows of such Borrower and its Subsidiaries for such fiscal year,
in each case prepared in accordance with generally accepted
accounting principles and certified by Ernst & Young, LLP or
other independent certified public accountants of recognized
standing acceptable to the Majority Banks, together with a
certificate of such accounting firm to the Banks (a) stating
that, in the course of the regular audit of the business of such
Borrower and its Subsidiaries, which audit was conducted by such
accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that an
Event of Default or an event which, with notice or lapse of time
or both, would constitute an Event of Default, has occurred and
is continuing, or if, in the opinion of such accounting firm, an
Event of Default or such an event has occurred and is continuing,
a statement as to the nature thereof, and (b) showing in detail
the calculations supporting such statement in respect of Section
5.02(b); provided, however, that in the case of NWP the primary
audited financial statements required by this Section
5.01(b)(iii) may be presented on a historical cost basis, but
such audited financial statements shall include, as additional
information, on a push-down basis reflecting the purchase price
of NWP paid by TWC, a Consolidated balance sheet, a Consolidated
statement of income and a Consolidated cash flow statement of NWP
and its Subsidiaries as of the end of and for the relevant fiscal
year, all prepared in accordance with generally accepted
accounting principles but excluding footnotes for the push-down
financial statements;
(iv) such other information respecting the business
or properties, or the condition or operations, financial or
otherwise, of such Borrower or any of its material Subsidiaries
as any Bank through the Agent may from time to time reasonably
request;
(v) promptly after the sending or filing thereof, copies
of all proxy material, reports and other information which such
Borrower sends to any of its security holders, and copies of all
final reports and final registration statements which such
Borrower or any material Subsidiary of such Borrower files with
the Securities and Exchange Commission or any national securities
exchange;
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<PAGE> 42
(vi) as soon as possible and in any event (A) within 30
Business Days after such Borrower or any ERISA Affiliate of such
Borrower knows or has reason to know that any Termination Event
described in clause (i) of the definition of Termination Event
with respect to any Plan has occurred and (B) within 30 Business
Days after such Borrower or any ERISA Affiliate of such Borrower
knows or has reason to know that any other Termination Event with
respect to any Plan has occurred or is reasonably expected to
occur, a statement of the chief financial officer or chief
accounting officer of such Borrower describing such Termination
Event and the action, if any, which such Borrower or such ERISA
Affiliate of such Borrower proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business Days
after receipt thereof by such Borrower or any ERISA Affiliate of
such Borrower, copies of each notice received by such Borrower or
any ERISA Affiliate of such Borrower from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(viii) within 30 days following request therefor by any
Bank, copies of each Schedule B (Actuarial Information) to each
annual report (Form 5500 Series) of such Borrower or any ERISA
Affiliate of such Borrower with respect to each Plan;
(ix) promptly and in any event within 25 Business Days
after receipt thereof by such Borrower or any ERISA Affiliate of
such Borrower from the sponsor of a Multiemployer Plan, a copy of
each notice received by such Borrower or any ERISA Affiliate of
such Borrower concerning (A) the imposition of a Withdrawal
Liability by a Multiemployer Plan, (B) the determination that a
Multiemployer Plan is, or is expected to be, in reorganization
within the meaning of Title IV of ERISA, (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA, or
(D) the amount of liability incurred, or expected to be incurred,
by such Borrower or any ERISA Affiliate of such Borrower in
connection with any event described in clause (A), (B) or (C)
above;
(x) not more than 60 days (or 105 days in the case of
the last fiscal quarter of a fiscal year of such Borrower) after
the end of each fiscal quarter of such Borrower, a certificate of
an authorized financial officer of such Borrower (a) stating the
respective ratings, if any, by each of S&P and Moody's of the
senior unsecured long-term debt of such Borrower as of the last
day of such quarter, (b) if such Borrower is WPL and WPL is
Unrated, stating (and showing the calculation of) the WPL Debt to
TNW Ratio on the last day of such quarter, and (c) if such
Borrower is WilTel and WilTel is Unrated, stating (and showing
the calculation of) the WilTel Debt to EBITDA Ratio on the last
day of such quarter; and
(xi) promptly after any withdrawal or termination of the
letter referred to in the second to last sentence of Section 1.05
or any change in the indicated rating set forth therein or any
change in, or issuance, withdrawal or termination
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of, the rating of any senior unsecured long-term debt of such
Borrower by S&P or Moody's, notice thereof.
(c) Maintenance of Insurance. Maintain, and cause each of
its material Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in
which such Borrower or its Subsidiaries operate, provided that such
Borrower or any of its Subsidiaries may self-insure to the extent and in
the manner normal for companies of like size, type and financial
condition.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which qualification is necessary or desirable in view
of its business and operations or the ownership of its properties, except
(1) in the case of any Non-Borrowing Subsidiary of such Borrower, where
the failure of such Subsidiary to so preserve, maintain, qualify and
remain qualified could not reasonably be expected to have a material
adverse effect on the business, assets, condition or operations of such
Borrower and its Subsidiaries taken as a whole and (2) in the case of such
Borrower, where the failure of such Borrower to preserve and maintain such
rights, franchises and privileges and to so qualify and remain qualified
could not reasonably be expected to have a material adverse effect on the
business, assets, condition or operations of such Borrower and its
Subsidiaries taken as a whole.
Section 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
no Borrower will, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to exist, or
permit any of its Subsidiaries to create, assume, incur or suffer to
exist, any Lien on or in respect of any of its property, whether now owned
or hereafter acquired, or assign or otherwise convey, or permit any such
Subsidiary to assign or otherwise convey, any right to receive income, in
each case to secure or provide for the payment of any Debt of any Person,
except that:
(i) TWC and its Non-Borrowing Subsidiaries which are
not Subsidiaries of any other Borrower may create, incur, assume
or suffer to exist Permitted TWC Liens;
(ii) WHD and its Non-Borrowing Subsidiaries which are
not Subsidiaries of any other Borrower (other than TWC) may
create, incur, assume or suffer to exist Permitted WHD Liens;
(iii) NWP and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted NWP Liens;
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(iv) TGPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGPL Liens;
(v) TGT and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGT Liens; and
(vi) WPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted WPL Liens.
(vii) WilTel and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted WilTel Liens.
(b) Debt. (i) In the case of TWC, permit the ratio of (A)
the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed 0.65 to 1.0 at any time;
(ii) In the case of WHD, permit the ratio of (A) the aggregate
amount of all Debt of WHD and its Subsidiaries on a Consolidated basis to
(B) the sum of the Consolidated Net Worth of WHD plus the aggregate amount
of all Debt of WHD and its Subsidiaries on a Consolidated basis to exceed
0.55 to 1.0 at any time; and
(iii) In the case of any Borrower (other than TWC and WHD),
permit the ratio of (A) the aggregate amount of all Debt of such Borrower
and its Subsidiaries on a Consolidated basis to (B) the sum of the
Consolidated Net Worth of such Borrower plus the aggregate amount of all
Debt of such Borrower and its Subsidiaries on a Consolidated basis to
exceed 0.60 to 1.0 at any time.
(c) Merger and Sale of Assets. Merge or consolidate with or
into any other Person, or sell, lease or otherwise transfer all or
substantially all of its assets, or permit any of its material
Subsidiaries to merge or consolidate with or into any other Person, or
sell, lease or otherwise transfer all or substantially all of its assets,
except that this Section 5.02(c) shall not prohibit:
(i) any Borrower and its Subsidiaries from selling,
leasing or otherwise transferring their respective assets in the
ordinary course of business;
(ii) any merger, consolidation or sale, lease or other
transfer of assets involving only TWC and its Subsidiaries;
provided, however, that transactions under this paragraph (ii)
shall be permitted if, and only if, (x) there shall not exist or
result an Event of Default or an event which with notice or lapse
of time or both would constitute an Event of Default and (y) in
the case of each transaction referred to in this paragraph (ii)
involving any Borrower or any of its Subsidiaries, such
transaction could not reasonably be expected to impair materially
the ability of such Borrower to perform its obligations hereunder
and under the Notes and such Borrower shall continue to exist;
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<PAGE> 45
(iii) any Borrower and its Subsidiaries from selling,
leasing or otherwise transferring their respective gathering
assets and other production area facilities, or the stock of any
Person substantially all of the assets of which are gathering
assets and other production area facilities, to TWC or to any
Subsidiary of TWC for consideration that is not materially less
than the net book value of such assets and facilities; provided,
however, that transactions under this paragraph (iii) shall be
permitted if, and only if, there shall not exist or result an
Event of Default or an event which with notice or lapse of time
or both would constitute an Event of Default;
(iv) any sale and lease-back of cushion gas by any
Borrower or any of its Subsidiaries or any sale and lease-back of
inventory by WPL or any of its Subsidiaries (other than another
Borrower);
(v) sales of receivables of any kind; or
(vi) any sale, lease or other transfer of any stock
or assets of Transco Energy Company and its Subsidiaries;
provided, however, that transactions under this paragraph (vi)
shall be permitted if, and only if, prior to the time of such
transaction Transco Energy Company and its Subsidiaries shall
have transferred to TWC all of their respective interests in TGPL
and TGT and shall not have reacquired any such interest and there
shall not exist or result an Event of Default or an event which
with notice or lapse of time or both would constitute an Event of
Default.
(d) Agreements to Restrict Dividends and Certain Transfers.
Enter into or suffer to exist, or permit any of its Subsidiaries to enter
into or suffer to exist, any consensual encumbrance or restriction on the
ability of any Subsidiary of TWC (i) to pay, directly or indirectly,
dividends or make any other distributions in respect of its capital stock
or pay any Debt or other obligation owed to TWC or to any Subsidiary of
TWC; or (ii) to make loans or advances to TWC or any Subsidiary of TWC,
except (1) encumbrances and restrictions on any immaterial Non- Borrowing
Subsidiary of TWC (other than WNG and WFS), (2) those encumbrances and
restrictions existing on the date hereof and described in Exhibit E, (3)
other encumbrances and restrictions now or hereafter existing of any
Borrower or any of its Non-Borrowing Subsidiaries that are not more
restrictive in any material respect than the encumbrances and restrictions
with respect to such Borrower or its Non-Borrowing Subsidiaries described
in Exhibit E, and (4) any encumbrances and restrictions created in
connection with any sale and lease-back of cushion gas by any Borrower or
any Subsidiary of any Borrower or any sale and lease-back of inventory by
WPL or any of its Subsidiaries (other than another Borrower).
(e) Loans and Advances. Borrow or otherwise receive any loan
or advance from TWC, and TWC will not make or permit to remain outstanding
any loan or advance to, or own, purchase or acquire any obligations or
debt securities of, any Subsidiary of TWC, except that TWC may make and
permit to remain outstanding loans and advances to its Subsidiaries (and
such Subsidiaries may borrow or otherwise receive such loans and advances)
if each such loan or advance (excluding loans and advances to a Subsidiary
of
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TWC if the aggregate principal amount of all such excluded loans and
advances to such Subsidiary does not exceed $100,000) is evidenced by a
written instrument duly executed by the Subsidiary of TWC to which such
loan or advance is made, bears interest at TWC's or such Subsidiary's
market rate of interest and matures on or before the Termination Date.
(f) Maintenance of Ownership of Certain Subsidiaries. Sell,
issue or otherwise dispose of, or create, assume, incur or suffer to exist
any Lien on or in respect of, or permit any of its Subsidiaries to sell,
issue or otherwise dispose of or create, assume, incur or suffer to exist
any Lien on or in respect of, any shares of or any interest in any shares
of the capital stock of (1) WHD, WNG, WFS, WPL, TGPL, TGT or NWP or any of
their respective material Subsidiaries or (2) any Subsidiary of TWC at the
time it owns any shares of or any interest in any shares of the capital
stock of WHD, WNG, WFS, WPL, TGPL, TGT or NWP or any of their respective
material Subsidiaries; provided, however, that, this Section 5.02(f) shall
not prohibit the sale or other disposition of the stock of any Subsidiary
of TWC to TWC or any Wholly-Owned Subsidiary of TWC if, but only if, (x)
there shall not exist or result an Event of Default or an event which with
notice or lapse of time or both would constitute an Event of Default and
(y) in the case of each sale or other disposition referred to in this
proviso involving any Borrower or any of its Subsidiaries, such sale or
other disposition could not reasonably be expected to impair materially
the ability of such Borrower to perform its obligations hereunder and
under the Notes and such Borrower shall continue to exist.
(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate of such Borrower to terminate, any Plan so as to result in
any liability of such Borrower or any such ERISA Affiliate to the PBGC in
excess of $5,000,000, or (ii) permit to exist any occurrence of any
Termination Event with respect to a Plan for which there is an
Insufficiency in excess of $5,000,000.
(h) Transactions with Related Parties. Make any sale to,
make any purchase from, extend credit to, make payment for services
rendered by, or enter into any other transaction with, or permit any
material Subsidiary of such Borrower to make any sale to, make any
purchase from, extend credit to, make payment for services rendered by, or
enter into any other transaction with, any Related Party of such Borrower
or of such Subsidiary unless as a whole such sales, purchases, extensions
of credit, rendition of services and other transactions are (at the time
such sale, purchase, extension of credit, rendition of services or other
transaction is entered into) on terms and conditions reasonably fair in
all material respects to such Borrower or such Subsidiary in the good
faith judgment of such Borrower.
(i) Guarantees. Guarantee or otherwise become contingently
liable for, or permit any of its Subsidiaries to guarantee or otherwise
become contingently liable for, Debt of any Subsidiary of TWC (other than
Williams Energy Company and its Subsidiaries which are not Borrowers)
while an Event of Default is continuing.
(j) Sale and Lease-Back Transactions. Enter into, or permit
any of its Subsidiaries to enter into, any Sale and Lease-Back
Transaction, if after giving effect
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thereto such Borrower would not be permitted to incur at least $1.00 of
additional Debt secured by a Lien permitted by (i) paragraph (z) of
Schedule III in the case of NWP and its Subsidiaries, (ii) paragraph (z)
of Schedule VI in the case of TWC and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower, (iii) paragraph (z) of
Schedule IV in the case of TGPL and its Subsidiaries, (iv) paragraph (z)
of Schedule V in the case of TGT and its Subsidiaries, (v) paragraph (i)
of Schedule VII in the case of WPL and its Subsidiaries, (vi) paragraph
(z) of Schedule VIII in the case of WHD and its Subsidiaries, and (vii)
paragraph ( ) of Schedule IX in the case of WilTel and its Subsidiaries.
(k) Use of Proceeds. Use any proceeds of any Advance for any
purpose other than general corporate purposes (including, without
limitation, repurchases by TWC of its capital stock, working capital and
capital expenditures) or use any such proceeds in any manner which
violates or results in a violation of law; provided, however that no
proceeds of any Advance will be used to acquire any equity security of a
class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, (other than any purchase of common stock
of any corporation, if such purchase is not subject to Sections 13 and 14
of the Securities Exchange Act of 1934 and is not opposed, resisted or
recommended against by such corporation or its management or directors,
provided that the aggregate amount of common stock of any corporation
(other than Apco Argentina Inc., a Cayman Islands corporation) purchased
during any calendar year shall not exceed 1% of the common stock of such
corporation issued and outstanding at the time of such purchase) or in any
manner which contravenes law, and no proceeds of any Advance will be used
to purchase or carry any margin stock (within the meaning of Regulation G
or Regulation U issued by the Board of Governors of the Federal Reserve
System), except purchases by TWC of its capital stock if, after giving
effect thereto, none of the Advances would constitute purpose credit
within the meaning of such Regulation U or purpose credit within the
meaning of such Regulation G.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Note
executed by it when the same becomes due and payable, or shall fail to pay
any interest on any such Note or any fee or other amount to be paid by it
hereunder within ten days after the same becomes due and payable; or
(b) Any certification, representation or warranty made by any
Borrower herein or by any Borrower (or any officer of any Borrower) in
writing under or in connection with any Note or this Agreement (including,
without limitation, representations and warranties deemed made pursuant to
Section 3.02 or 3.03) shall prove to have been incorrect in any material
respect when made or deemed made; or
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<PAGE> 48
(c) Any Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.01(b) on its part to be
performed or observed and such failure shall continue for five Business
Days after the earlier of the date notice thereof shall have been given to
such Borrower by the Agent or any Bank or the date such Borrower shall
have knowledge of such failure, or (ii) any term, covenant or agreement
contained in this Agreement (other than a term, covenant or agreement
contained in Section 5.01(b)) or any Note on its part to be performed or
observed; or
(d) Any Borrower or any Subsidiary of any Borrower shall fail
to pay any principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $60,000,000 in the aggregate
(excluding Debt evidenced by the Notes) of such Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment or as required pursuant
to an illegality event of the type set forth in Section 2.12), prior to
the stated maturity thereof; provided, however, that the provisions of
this Section 6.01(d) shall not apply to any Non-Recourse Debt of any
Subsidiary of a Borrower; or
(e) Any Borrower or any material Subsidiary of any Borrower
shall generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against any Borrower or any material Subsidiary of any
Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), shall remain undismissed or
unstayed for a period of 30 days; or any Borrower or any material
Subsidiary of any Borrower shall take any action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess
of $60,000,000 shall be rendered against any Borrower or any material
Subsidiary of any Borrower and remain unsatisfied and either (i)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
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(g) Any Termination Event with respect to a Plan shall have
occurred and, 30 days after notice thereof shall have been given to any
Borrower by the Agent, (i) such Termination Event shall still exist and
(ii) the sum (determined as of the date of occurrence of such Termination
Event) of the Insufficiency of such Plan and the Insufficiency of any and
all other Plans with respect to which a Termination Event shall have
occurred and then exist (or in the case of a Plan with respect to which a
Termination Event described in clause (ii) of the definition of
Termination Event shall have occurred and then exist, the liability
related thereto) is equal to or greater than $5,000,000; or
(h) Any Borrower or any ERISA Affiliate of any Borrower shall
have been notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan in an amount
which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities (determined
as of the date of such notification), exceeds $15,000,000 in the aggregate
or requires payments exceeding $10,000,000 per annum; or
(i) Any Borrower or any ERISA Affiliate of any Borrower shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrowers and their
respective ERISA Affiliates to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan
years which include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the holders of at least 66-2/3% in principal amount of the A
Notes then outstanding or, if no A Notes are then outstanding, Banks having at
least 66-2/3% of the Commitments, by notice to the Borrowers, declare all of
the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the holders of at least 66-2/3% in principal amount of the A Notes then
outstanding or if no A Notes are then outstanding, Banks having at least
66-2/3% of the Commitments, or, if no A Notes are then outstanding and all
Commitments have terminated, the holders of at least 66-2/3% in principal
amount of the B Notes then outstanding, by notice to the Borrower as to which
an Event of Default exists (determined as contemplated by the definition herein
of Events of Default), declare the Notes of such Borrower, all interest thereon
and all other amounts payable by such Borrower under this Agreement to be
forthwith due and payable, whereupon such Notes, such interest and all such
amounts shall become and be forthwith due and payable, without requirement of
any presentment, demand, protest, notice of intent to accelerate, further
notice of acceleration or other further notice of any kind (other than the
notice expressly provided for above), all of which are hereby expressly waived
by each Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A) the obligation of each Bank to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby expressly
waived by each Borrower.
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ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
holders of at least 66-2/3% in principal amount of the A Notes then outstanding
or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the
Commitments (or, if no A Notes are then outstanding and all Commitments have
terminated, upon the instructions of holders of at least 66-2/3% in principal
amount of the B Notes then outstanding), and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to any Note, this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by any Borrower pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with any Note
or this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent:
(i) may treat the payee of any Note as the holder thereof until the Agent
receives and accepts a Transfer Agreement executed by a Borrower, the Bank
which is the payee of such Note, as assignor, and the assignee in accordance
with the last sentence of Section 8.06(a); (ii) may consult with legal counsel
(including counsel for any Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Note or this Agreement; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or
conditions of any Note or this Agreement on the part of any Borrower or to
inspect the property (including the books and records) of any Borrower; (v)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Note or this Agreement
or any other instrument or document furnished pursuant hereto; and (vi) shall
incur no liability under or in respect of any Note or this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
Section 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under any Note and this Agreement as any other
Bank and may exercise the same as though it
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was not the Agent; and the term "Bank" or "Banks" shall, unless otherwise
expressly indicated, include Citibank in its individual capacity. Citibank and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Borrower,
any Subsidiary of any Borrower, any Person who may do business with or own,
directly or indirectly, securities of any Borrower or any such Subsidiary and
any other Person, all as if Citibank were not the Agent and without any duty to
account therefor to the Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent or any other Bank and
based on the financial statements referred to in Section 4.01(e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under any Note or this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by the Borrowers), ratably according to the
respective principal amounts of the A Notes then held by each of them (or if no
A Notes are at the time outstanding or if any A Notes are held by Persons which
are not Banks, ratably according to either (i) the respective amounts of their
Commitments to TWC, or (ii) if all Commitments to TWC have terminated, the
respective amounts of the Commitments to TWC immediately prior to the time the
Commitments to TWC terminated), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or
arising out of any Note or this Agreement or any action taken or omitted by the
Agent under any Note or this Agreement, provided that no Bank shall be liable
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, any Note or this
Agreement to the extent that the Agent is not reimbursed for such expenses by
the Borrowers.
Section 7.06. Successor Agent. The Agent may resign at any time
as Agent under this Agreement by giving written notice thereof to the Banks and
the Borrowers and may be removed at any time with or without cause by the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint, with the consent of TWC (which consent shall not be
unreasonably withheld), a successor Agent from among the Banks. If no
successor Agent shall have been so appointed by the Majority Banks with such
consent, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank which is a commercial bank
organized under the laws of the United States of America or of any State
thereof and having
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a combined capital and surplus of at least $500,000,000. Upon the acceptance
of any appointment as Agent under this Agreement by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and shall function
as the Agent under this Agreement, and the retiring Agent shall be discharged
from its duties and obligations as Agent under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
Section 7.07. Liability of Co-Agents. No Co-Agent, in its
capacity as Co-Agent hereunder, shall have any duty or liability hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Note or this Agreement, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following: (a)
waive any of the conditions specified in Article III, (b) increase the
Commitments of the Banks or subject the Banks to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) take any action which requires the signing of all the Banks
pursuant to the terms of this Agreement, (f) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the A Notes or B
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Agreement, or (g) amend this Section 8.01;
and provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required above to take
such action, affect the rights or duties of the Agent under any Note or this
Agreement.
Section 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Bank, as specified opposite its name on
Schedule I hereto or specified pursuant to Section 8.06(a); if to any Borrower,
as specified opposite its name on Schedule II hereto; and if to Citibank, as
Agent, to its address at 399 Park Avenue, New York, New York 10043,
(telecopier number: (212) 527-1084), Attention: John Sahr, with a copy to
Citicorp North America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas
77002 (telecopier number: (713) 654-2849; telex number 127001 (Attn: Route Code
HOUAA)), Attention: The Williams Companies, Inc. Account Officer; or, as to
any Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrowers and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
in the mail,
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sent by telecopier to any party to the telecopier number as set forth herein or
on Schedule I or Schedule II or specified pursuant to Section 8.06(a) (or other
telecopy number specified by such party in a written notice to the other
parties hereto), delivered to the telegraph company, telexed to any party to
the telex number set forth herein or on Schedule I or Schedule II or specified
pursuant to Section 8.06(a) (or other telex number designated by such party in
a written notice to the other parties hereto), confirmed by telex answerback,
or delivered to the cable company, respectively, except that notices and
communications to the Agent shall not be effective until received by the Agent.
Section 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Agent to exercise, and no delay in exercising, any right under
any Note or this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
any Note and this Agreement are cumulative and not exclusive of any remedies
provided by law.
Section 8.04. Costs, Expenses and Taxes. (a)(i) TWC agrees to
pay on demand all reasonable out-of-pocket costs and expenses of the Arranger
and the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered under this Agreement, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under any Note and this Agreement, and (ii) each
Borrower agrees to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses, which may include
allocated costs of in-house counsel), of the Agent and each Bank in connection
with the enforcement (whether through negotiations, legal proceedings or
otherwise) against such Borrower of any Note of such Borrower or this Agreement
and the other documents to be delivered by such Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section 2.11(c)
or Section 8.06(b)) of principal of, or Conversion of, any Eurodollar Rate
Advance or B Advance made to any Borrower is made other than on the last day of
an Interest Period relating to such Advance (or in the case of a B Advance,
other than on the original scheduled maturity date thereof), as a result of a
payment pursuant to Section 2.10 or 2.12 or acceleration of the maturity of the
Notes pursuant to Section 6.01 or for any other reason or as a result of any
such purchase or any Conversion, such Borrower shall, upon demand by any Bank
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Bank any amounts required to compensate such Bank for any additional
losses, costs or expenses which it may reasonably incur as a result of any such
payment, purchase or Conversion, including, without limitation, any loss, cost
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain such Advance.
(c) Each Borrower agrees, to the fullest extent permitted by
law, to indemnify and hold harmless the Agent, the Arranger and each Bank and
each of their respective directors, officers, employees and agents from and
against any and all claims, damages, liabilities and out-of-pocket expenses
(including, without limitation, reasonable fees and disbursements of counsel)
for which any of them may become liable or which may be incurred by or asserted
against the Agent, the Arranger or such Bank or any such director, officer,
employee or agent (other than by
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another Bank or any successor or assign of another Bank), in each case in
connection with or arising out of or by reason of any investigation,
litigation, or proceeding, whether or not the Agent, the Arranger or such Bank
or any such director, officer, employee or agent is a party thereto, arising
out of, related to or in connection with this Agreement or the Notes or any
transaction in which any proceeds of all or any part of the Advances are
applied (other than any such claim, damage, liability or expense to the extent
attributable to the gross negligence or willful misconduct of, or violation of
any law or regulation by, either the party seeking indemnity under this Section
8.04(c) or any of its directors, officers, employees or agents).
Section 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes of a Borrower due and payable pursuant to the
provisions of Section 6.01, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of such Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Notes held by such Bank, irrespective of whether or not such Bank shall
have made any demand under this Agreement or such Notes and although such
obligations may be unmatured. Each Bank agrees promptly to notify such
Borrower after such set-off and application made by such Bank, provided that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
Section 8.06. Binding Effect; Transfers. (a) This Agreement
shall become effective when it shall have been executed by the Borrowers and
the Agent and when each Bank listed on the signature pages hereof has delivered
an executed counterpart hereof to the Agent, has sent to the Agent a facsimile
copy of its signature hereon or has notified the Agent that such Bank has
executed this Agreement and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Bank and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign any of their respective rights hereunder or any interest herein without
the prior written consent of the Banks. Each Bank may assign to one or more
banks, financial institutions or government entities all or any part of, or may
grant participations to one or more banks, financial institutions or government
entities in or to all or any part of, any Advance or Advances owing to such
Bank, any Note or Notes held by such Bank and all or any portion of such Bank's
Commitments, and to the extent of any such assignment or participation (unless
otherwise stated therein) the assignee or purchaser of such assignment or
participation shall, to the fullest extent permitted by law, have the same
rights and benefits hereunder and under such Note or Notes as it would have if
it were such Bank hereunder, provided that, except in the case of an assignment
meeting the requirements of the next sentence hereof, (1) such Bank's
obligations under this Agreement, including, without limitation, its
Commitments to the Borrowers hereunder, shall remain unchanged, such Bank shall
remain responsible for the performance thereof, such Bank shall remain the
holder of any such Note or Notes for all purposes under this Agreement, and the
Borrowers, the other Banks and the Agent shall continue to deal solely with and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; and (2) no Bank shall assign or grant a participation
that conveys to the assignee or
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participant the right to vote or consent under this Agreement, other than the
right to vote upon or consent to (i) any increase in the amount of any
Commitment of such Bank; (ii) any reduction of the principal amount of, or
interest to be paid on, such Bank's Advance or Advances or Note or Notes; (iii)
any reduction of any fee or other amount payable hereunder to such Bank; or
(iv) any postponement of any date fixed for any payment of principal of, or
interest on, such Bank's Advance or Advances or Note or Notes or any fee or
other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or (2) is
approved in writing by the Agent and the Borrowers or (3) is approved in
writing by the Agent and either an Event of Default exists or the Borrowers
have relinquished the right to approve the assignment pursuant to Section
8.06(b), and (II) such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
to TWC assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000 or such lesser amount as may be approved in writing by the Agent and
TWC for such assignment) of each of the Commitments of such assigning Bank to
the respective Borrowers (either all of each such Commitment shall be assigned
or the percentage portion of each such Commitment assigned shall be the same as
to each Borrower) by executing a document in the form of Exhibit F (or with
such changes thereto as have been approved in writing by the Agent in its sole
discretion as evidenced by its execution thereof) duly executed by the Agent,
the Borrowers (unless an Event of Default exists or the Borrowers have
relinquished the right to approve the assignment pursuant to Section 8.06(b)),
such assigning Bank and such assignee and delivered to the Agent ("Transfer
Agreement"), then upon such delivery, (i) such assigning Bank shall be released
from its obligations under this Agreement with respect to all or such portion,
as the case may be, of its Commitments, (ii) such assignee shall become
obligated for all or such portion, as the case may be, of such Commitments and
all other obligations of such assigning Bank hereunder with respect to or
arising as a result of all or such portion, as the case may be, of such
Commitments, (iii) such assignee shall be assigned the right to vote or consent
under this Agreement, to the extent of all or such portion, as the case may be,
of such Commitments, (iv) each Borrower shall deliver, in replacement of the A
Note of such Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of such Borrower in the amount of the Commitment of such
assigning Bank to such Borrower which is being so assumed by such assignee
plus, in the case of any assignee which is already a Bank hereunder, the amount
of such assignee's Commitment to such Borrower immediately prior to such
assignment (any such assignee which is already a Bank hereunder agrees to
cancel and return to such Borrower, with reasonable promptness following the
delivery of such new A Note, the A Note being replaced thereby), (b) to such
assigning Bank, a new A Note in the amount of the balance, if any, of the
Commitment of such assigning Bank to such Borrower (without giving effect to
any B Reduction) retained by such assigning Bank (and such assigning Bank
agrees to cancel and return to such Borrower, with reasonable promptness
following delivery of such new A Notes, the A Note being replaced thereby), and
(c) to the Agent, photocopies of such new A Notes, (v) if such assignment is of
all of such assigning Bank's Commitments to the Borrowers, all of the
outstanding A Advances made by such assigning Bank shall be transferred to such
assignee, (vi) if such assignment is not of all of such Commitments, a part of
each A Advance to each Borrower equal to the amount of such Advance multiplied
by a fraction, the numerator of which is the amount of such portion of such
assigning Bank's Commitment to such Borrower so assumed and the denominator of
which is the amount of the Commitment of such assigning Bank to such Borrower
(without giving effect to any B Reduction)
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immediately prior to such assumption, shall be transferred to such assignee and
evidenced by such assignee's A Note from such Borrower, and the balance of such
A Advance shall be evidenced by such assigning Bank's new A Note from such
Borrower delivered pursuant to clause (iv)(b) of this sentence, (vii) if such
assignee is not a "Bank" hereunder prior to such assignment, such assignee
shall become a party to this Agreement as a Bank and shall be deemed to be a
"Bank" hereunder, and the amount of all or such portion, as the case may be, of
the Commitment to each of the respective Borrowers so assumed shall be deemed
to be the amount for such Borrower set opposite such assigning Bank's name on
Schedule IX for purposes of this Agreement, and (viii) if such assignee is not
a Bank hereunder prior to such assignment, such assignee shall be deemed to
have specified the offices of such assignee named in the respective Transfer
Agreement as its "Domestic Lending Office" and "Eurodollar Lending Office" for
all purposes of this Agreement and to have specified for purposes of Section
8.02 the notice information set forth in such Transfer Agreement; and the Agent
shall promptly after execution of any Transfer Agreement by the Agent and the
other parties thereto notify the Banks of the parties to such Transfer
Agreement and the amounts of the assigning Bank's Commitments assumed thereby.
(b) If the Borrowers do not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), TWC may, within 15 days
of its receipt of a request that it consent to such assignment nominate by
notice to the Agent and such Bank a bank which, if it is not a Bank, is
acceptable to the Agent, and which unconditionally offers in writing (with a
copy to the Agent) to purchase and assume, to the extent of the amount of such
proposed assignment, in accordance with all of the provisions of the last
sentence of Section 8.06(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitments) hereunder and interest in the Advances owing to
such Bank and the Notes held by such Bank without recourse at par plus interest
accrued thereon to the date of such purchase on a date therein specified (not
less than three nor greater than five Business Days after such nomination).
Such Bank at its option may elect to accept or not accept such purchase offer.
If a Bank accepts such an offer and the bank first nominated by TWC pursuant to
this Section 8.06(b) fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, TWC may, within 15
days of such failure, repeat the process contemplated by the first sentence of
this Section 8.06(b) by nominating another bank for purposes of this Section
8.06(b) by notice to the Agent and such Bank. If TWC does not so nominate such
a bank within 15 days of its receipt of such request that it consent to such
assignment or if TWC fails to nominate another bank following such a failure to
purchase or if such second nominated bank fails to purchase in accordance with
the terms of an offer complying with the first sentence of this Section
8.06(b), the Borrowers shall be deemed to have relinquished their right to
consent to such assignment. If such Bank elects to not accept such a purchase
offer under this Section 8.06(b) as to a particular proposed assignment, the
Borrowers shall not be deemed to have relinquished their right to consent to
such assignment.
(c) The Borrowers agree to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrowers of the
assignee is not required by clause (I) of the last sentence of Section 8.06(a).
(d) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under this
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Agreement or any of the Notes to any Federal Reserve Bank without notice to or
consent of any Borrower or the Agent.
Section 8.07. Governing Law. This Agreement and the Notes shall
be governed by, and construed in accordance with, the laws of the State of New
York.
Section 8.08. Interest. It is the intention of the parties
hereto that the Agent and each Bank shall conform strictly to usury laws
applicable to it, if any. Accordingly, if the transactions with the Agent or
any Bank contemplated hereby would be usurious under applicable law, then, in
that event, notwithstanding anything to the contrary in the Notes, this
Agreement or any other agreement entered into in connection with or as security
for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be cancelled automatically and, if
theretofore paid, shall at the option of the Agent or such Bank, as the case
may be, be credited by the Agent or such Bank, as the case may be, on the
principal amount of the obligations owed to the Agent or such Bank, as the case
may be, by the appropriate Borrower or refunded by the Agent or such Bank, as
the case may be, to the appropriate Borrower, and (ii) in the event that the
maturity of any Note or other obligation payable to the Agent or such Bank, as
the case may be, is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or such Bank, as the case may be, may never include
more than the maximum amount allowed by such applicable law and excess
interest, if any, to the Agent or such Bank, as the case may be, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of the Agent or such Bank, as the case may be, be credited by the Agent
or such Bank, as the case may be, on the principal amount of the obligations
owed to the Agent or such Bank, as the case may be, by the appropriate Borrower
or refunded by the Agent or such Bank, as the case may be, to the appropriate
Borrower.
Section 8.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.10. Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by any
Borrower or any officer of any Borrower herein or in any certificate or other
document delivered in connection with this Agreement shall be considered to
have been relied upon by the Banks and shall survive the issuance and delivery
of the Notes and the making of the Advances regardless of any investigation.
The indemnities and other payment obligations of each Borrower contained in
this Agreement, and the indemnities by the Banks in favor of the Agent and its
officers, directors, employees and agents, will survive the repayment of the
Advances and the termination of this Agreement.
-53-
<PAGE> 58
Section 8.11. Borrowers' Right to Apply Deposits. In the event
that any Bank is placed in receivership or enters a similar proceeding, each
Borrower may, to the full extent permitted by law, make any payment due to such
Bank hereunder, to the extent of finally collected unrestricted deposits of
such Borrower in U.S. dollars held by such Bank, by giving notice to the Agent
and such Bank directing such Bank to apply such deposits to such indebtedness.
If the amount of such deposits is insufficient to pay such indebtedness then
due and owing in full, such Borrower shall pay the balance of such
insufficiency in accordance with this Agreement.
Section 8.12. Confidentiality. Each Bank agrees that it will
use best efforts, to the extent not inconsistent with practical business
requirements, not to disclose without the prior consent of TWC (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrowers or their
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrowers in good faith consider to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrowers to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to such
Bank, (e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes or any interest therein by such Bank, provided
that such prospective transferee executes an agreement with or for the benefit
of the Borrowers containing provisions substantially identical to those
contained in this Section 8.12, and provided further that if the contemplated
transfer is a grant of a participation in a Note (and not an assignment), no
such information shall be authorized to be delivered to such participant
pursuant to this clause (e) except (i) such information delivered pursuant to
Section 4.01(e) or Section 5.01(b) (other than paragraph (iv) thereof), and
(ii) if prior notice of the delivery thereof is given to TWC, such information
as may be required by law or regulation to be delivered, (f) in connection with
the exercise of any remedy by such Bank pertaining to this Agreement, any of
the Notes or any other document delivered in connection herewith, (g) in
connection with any litigation involving such Bank pertaining to this
Agreement, any of the Notes or any other document delivered in connection
herewith, (h) to any Bank or the Agent, or (i) to any affiliate of any Bank,
provided that such affiliate executes an agreement with or for the benefit of
the Borrowers containing provisions substantially identical to those contained
in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT,
AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.14. Miscellaneous. This Agreement shall become
effective in accordance with the first sentence of Section 8.06(a). Subject to
compliance with such sentence,
-54-
<PAGE> 59
the amendments to the 1996 Credit Agreement effected by this Agreement
(including, without limitation, the amendments to the definition of "Applicable
Margin") shall for all purposes be effective as of July 23, 1997. On July 23,
1997, each Borrower will pay in full all principal, interest and fees owed by
it outstanding under the 1996 Credit Agreement.
-55-
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
BORROWERS:
THE WILLIAMS COMPANIES, INC. TEXAS GAS TRANSMISSION
CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
-------------------------- -----------------------
Title: Title:
------------------------- ----------------------
TRANSCONTINENTAL GAS PIPE LINE WILLIAMS PIPE LINE COMPANY
CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
-------------------------- -----------------------
Title: Title:
------------------------- ----------------------
WILLIAMS HOLDINGS OF DELAWARE, INC. WILTEL COMMUNICATIONS, LLC
By:
---------------------------- By:
Name: -------------------------
-------------------------- Name:
Title: -----------------------
------------------------- Title:
----------------------
NORTHWEST PIPELINE CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-56-
<PAGE> 61
AGENT:
CITIBANK, N.A., as Agent
By:
--------------------------
J Christopher Lyons
Vice President
BANKS:
CITIBANK, N.A.
By:
--------------------------
J. Christopher Lyons
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
--------------------------
Authorized Officer
THE CHASE MANHATTAN BANK
By:
--------------------------
Authorized Officer
CIBC INC.
By:
--------------------------
Authorized Officer
-57-
<PAGE> 62
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF
CHICAGO
By:
--------------------------
Authorized Officer
BANK OF MONTREAL
By:
--------------------------
Authorized Officer
THE BANK OF NEW YORK
By:
--------------------------
Authorized Officer
THE BANK OF NOVA SCOTIA
By:
--------------------------
Authorized Officer
BARCLAYS BANK PLC
By:
--------------------------
Authorized Officer
-58-
<PAGE> 63
BOATMEN'S NATIONAL BANK
OF OKLAHOMA
By:
--------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF
BOSTON
By:
--------------------------
Authorized Officer
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
--------------------------
Authorized Officer
MELLON BANK, N.A.
By:
--------------------------
Authorized Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
--------------------------
Authorized Officer
ROYAL BANK OF CANADA
By:
--------------------------
Authorized Officer
-59-
<PAGE> 64
SOCIETE GENERALE,
SOUTHWEST AGENCY
By:
--------------------------
Authorized Officer
WELLS FARGO BANK, N.A.
By:
--------------------------
Authorized Officer
BANK OF OKLAHOMA, N.A.
By:
--------------------------
Authorized Officer
COMMERCE BANK, N.A.
By:
--------------------------
Authorized Officer
-60-
<PAGE> 65
SCHEDULE IX
PERMITTED WILTEL LIENS
(a) Any purchase money Lien created by WilTel or any of its Subsidiaries to
secure all or part of the purchase price of any property (or to secure a loan
made to enable WilTel or any of its Subsidiaries to acquire the property secured
by such Lien), provided that the principal amount of the Debt secured by any
such Lien, together with all other Debt secured by a Lien on such property,
shall not exceed the purchase price of the property acquired.
(b) Any Lien existing on any property at the time of the acquisition thereof
by WilTel or any of its Subsidiaries, whether or not assumed by WilTel or any of
its Subsidiaries, and any Lien on any property acquired or constructed by WilTel
or any of its Subsidiaries and created not later than 12 months after (i) such
acquisition or completion of such construction or (ii) commencement of full
operation of such property, whichever is later, provided, however, that if
assumed or created by WilTel or any of its Subsidiaries, the principal amount of
the Debt secured by such Lien, together with all other Debt secured by a Lien on
such property, shall not exceed the purchase price of the property acquired
and/or the cost of the property constructed.
(c) Any Lien created or assumed by WilTel or any of its Subsidiaries on any
contract for the sale of any product or service or any rights thereunder or any
proceeds therefrom, including accounts and other receivables, related to the
operation or use of any property acquired or constructed by WilTel or any of its
Subsidiaries and created not later than 12 months after (i) such acquisition or
completion of such construction or (ii) commencement of full operation of such
property, whichever is later, provided, however, that the principal amount of
the Debt secured by such mortgage together with all other Debt secured by any
such contract, rights or property, shall not exceed the purchase price of the
property acquired and/or the cost of the property constructed.
(d) Any Lien existing on any property of a Subsidiary of WilTel at the time
it becomes a Subsidiary of WilTel.
(e) Any refunding or extension of maturity, in whole or in part, of any Lien
created or assumed in accordance with the provisions of paragraph (a), (b), (c)
or (d) above, provided that the principal amount of the Debt secured by such
refunding Lien or extended Lien shall not exceed the principal amount of the
Debt secured by the Lien to be refunded or extended outstanding at the time of
such refunding or extension and that such refunding Lien or extended Lien shall
be limited to the same property that secured the Lien so refunded or extended.
(f) Mechanics' or materialmen's liens arising in the ordinary course of
business which are not more than 90 days past due or are being contested in good
faith by appropriate proceedings or any Lien arising by reason of pledges or
deposits to secure payment of workmen's compensation or other insurance, good
faith deposits in connection with tenders or leases of real estate, bids or
contracts (other
<PAGE> 66
than contracts for the payment of money), in each case to secure obligations of
TWC or any of its Subsidiaries.
(g) Deposits to secure public or statutory obligations, deposits to secure or
in lieu of surety, stay or appeal bonds and deposits as security for the payment
of taxes or assessments or other similar charges, in each case to secure
obligations of TWC or any of its Subsidiaries; provided, however, that the
aggregate amount of obligations secured by Liens permitted by this paragraph (g)
shall not exceed 10% of Consolidated Tangible Net Worth of TWC.
(h) Any Lien arising by reason of deposits with or the giving of any form of
security to any governmental agency or any body created or approved by law or
governmental regulation for any purpose at any time as required by law or
governmental regulation (i) as a condition to the transaction by TWC or any of
its Subsidiaries of any business or the exercise by TWC or any of its
Subsidiaries of any privilege or license, (ii) to enable TWC or any of its
Subsidiaries to maintain self-insurance or to participate in any fund for
liability on any insurance risks or (iii) in connection with workmen's
compensation, unemployment insurance, old age pensions or other social security
with respect to TWC or any of its Subsidiaries or to enable TWC or any of its
Subsidiaries to share in the privileges or benefits required for companies
participating in such arrangements.
(i) Liens incurred in the ordinary course of business upon rights-of-way.
(j) Undetermined mortgages and charges incidental to construction or
maintenance arising in the ordinary course of business which are not more than
90 days past due or are being contested in good faith by appropriate
proceedings.
(k) The right reserved to, or vested in, any municipality or governmental or
other public authority or railroad by the terms of any right, power, franchise,
grant, license, permit or by any provision of law, to terminate or to require
annual or other periodic payments as a condition to the continuance of such
right, power, franchise, grant, license or permit.
(1) The Lien of taxes and assessments which are not at the time delinquent.
(m) The Lien of specified taxes and assessments which are delinquent but the
validity of which is being contested in good faith by WilTel or any of its
Subsidiaries by appropriate proceedings and with respect to which reserves in
conformity with generally accepted accounting principles, if required by such
principles, have been provided on the books of WilTel or the relevant Subsidiary
of WilTel, as the case may be.
(n) The Lien reserved in leases entered into in the ordinary course of
business for rent and for compliance with the terms of the lease in the case of
real property leasehold estates.
(o) Defects and irregularities in the titles to any property (including
rights-of-way and easements) which are not material to the business, assets,
operations or financial condition of WilTel and its Subsidiaries considered as a
whole.
-2-
<PAGE> 67
(p) Any Liens securing Debt neither assumed nor guaranteed by WilTel or any
of its Subsidiaries nor on which any of them customarily pays interest, existing
upon real estate or rights in or relating to real estate (including
rights-of-way and easements) acquired by WilTel or any of its Subsidiaries for
pipeline, metering station or right-of-way purposes, which Liens were not
created in anticipation of such acquisition and do not materially impair the use
of such property for the purposes for which it is held by WilTel or such
Subsidiary.
(q) Easements, exceptions or reservations in any property of WilTel or any of
its Subsidiaries granted or reserved in the ordinary course of business for the
purpose of pipelines, roads, telecommunication equipment and cable, streets,
alleys, highways, railroads, the removal of oil, gas, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real
property, facilities and equipment, which do not materially impair the use of
such property for the purposes for which it is held by WilTel or such
Subsidiary.
(r) Rights reserved to or vested in any municipality or public authority to
control or regulate any property of WilTel or any of its Subsidiaries, or to use
such property in any manner which does not materially impair the use of such
property for the purposes for which it is held by WilTel or such Subsidiary.
(s) Any obligations or duties, affecting the property of WilTel or any of its
Subsidiaries, to any municipality or public authority with respect to any
franchise, grant, license or permit.
(t) (i) The Liens of any judgments in an aggregate amount for WilTel and all
of its Subsidiaries not in excess of $5,000,000, execution of which has not been
stayed and (ii) the Liens of any judgments in an aggregate amount for WilTel and
all of its Subsidiaries not in excess of $25,000,000, the execution of which has
been stayed and which have been appealed and secured, if necessary and permitted
hereby, by the filing of an appeal bond.
(u) Zoning laws and ordinances.
(v) Any Lien existing on any office equipment, data processing equipment
(including computer and computer peripheral equipment), motor vehicles,
aircraft, marine vessels or similar transportation equipment.
(w) Any Lien consisting of interests in receivables in connection with
agreements for sales of receivables of any kind by WilTel or any of its
Subsidiaries for cash.
(x) Any Lien not permitted by paragraphs (a) through (w) above securing Debt
of WilTel and its Subsidiaries or securing any Debt of WilTel and its
Subsidiaries which constitutes a refunding or extension of any such Debt if at
the time of, and after giving effect to, the creation or assumption of any such
Lien, the sum of the aggregate of all Debt of WilTel and its Subsidiaries
secured by all such Liens not so permitted by paragraphs (a) through (w) above
plus the amount of Attributable Obligations of WilTel and its Subsidiaries in
respect of Sale and Lease-Back Transactions permitted by Section 5.020(j) does
not exceed 5% of the sum of (i) Consolidated Tangible Net Worth of WilTel plus
(ii) Debt of WilTel and its Subsidiaries on a Consolidated basis.
-3-
<PAGE> 68
EXHIBIT A-1
A PROMISSORY NOTE
U.S. $ Dated: ,
---------------- ----------- ------
FOR VALUE RECEIVED, the undersigned, [Borrower], a Delaware corporation
(the "Borrower"), HEREBY PROMISES TO PAY to the order of ________________ (the
"Bank"), for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below), on the Stated Termination Date (as defined
in the Credit Agreement referred to below), the principal amount of
$____________, or, if less, the aggregate principal amount of the A Advances (as
defined in the Credit Agreement referred to below) owed to the Bank by the
Borrower on such Stated Termination Date.
The Borrower promises to pay interest on the unpaid principal amount hereof
until such principal amount is paid in full, at such interest rates, and payable
at such times, as are specified in the Credit Agreement referred to below. Both
principal and interest are payable in lawful money of the United States of
America to Citibank, N.A., as Agent, at 399 Park Avenue, New York, New York
10043, in same day funds. Each A Advance owed to the Bank by the Borrower, and
all payments made on account of principal thereof, shall be recorded by the Bank
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this A Promissory Note.
This A Promissory Note is one of the A Notes referred to in, and is subject
to and entitled to the benefits of, the Second Amended and Restated Credit
Agreement dated as of July 23, 1997 (as amended or otherwise modified from time
to time, the "Credit Agreement") among the Borrower, the Bank, certain other
borrowers parties thereto, certain other banks parties thereto and Citibank,
N.A., as Agent for the Bank and such other banks. The Credit Agreement, among
other things, (i) provides for the making of advances to the Borrower from time
to time pursuant to Section 2.01 of the Credit Agreement in an aggregate
outstanding amount not to exceed at any time the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such advance
owed to the Bank being evidenced by this A Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified. Capitalized
terms used herein which are not defined herein and are defined in the Credit
Agreement are used herein as therein defined.
The Borrower hereby waives presentment, demand, protest, notice of intent
to accelerate, notice of acceleration and any other notice of any kind, except
as provided in the Credit Agreement. No failure to exercise, and no delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of such rights.
This A Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York.
[BORROWER]
----------------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 69
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Paid or Principal Notation
Date Advance Prepaid Balance Made By
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
</TABLE>
-2-
<PAGE> 70
EXHIBIT A-2
B PROMISSORY NOTE
U.S. $ Dated: ,
---------------- ----------- ------
FOR VALUE RECEIVED, the undersigned, [Borrower] , a Delaware corporation
(the "Borrower"), HEREBY PROMISES TO PAY to the order of
___________________________ (the "Bank") for the account of its Applicable
Lending Office (as defined in the Credit Agreement referred to below), on
________________, the principal amount of _________________________ U.S. Dollars
($___________).
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: ______% per annum (calculated on the basis of a year of ____
days for the actual number of days elapsed).
Interest Payment Date or Dates:
--------------------------
Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Agent, for the account of the Bank at
the office of Citibank, N.A., at 399 Park Avenue, New York, New York 10043, in
same day funds.
This B Promissory Note is one of the B Notes referred to in, and is
entitled to the benefits of, the Second Amended and Restated Credit Agreement
dated as of July 23, 1997 (as amended or otherwise modified from time to time,
the "Credit Agreement") among the Borrower, the Bank, certain other borrowers
parties thereto, certain other banks parties thereto and Citibank, N.A., as
Agent for the Bank and such other banks. The Credit Agreement, among other
things, contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events. Capitalized terms used herein which are not
defined herein and are defined in the Credit Agreement are used herein as
therein defined.
The Borrower hereby waives presentment, demand, protest, notice of
intent to accelerate, notice of acceleration and any other notice of any kind,
except as provided in the Credit Agreement. No failure to exercise, and no delay
in exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.
This B Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
[BORROWER]
----------------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 71
AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF
JULY 23, 1997
DATED AS OF JANUARY 26, 1999
THIS AMENDMENT (herein called this "Amendment") is made and entered
into this 26th day of January, 1999, by and among the Borrowers, the Agent and
the Banks. In consideration of the mutual covenants and agreements contained
herein, the Borrowers, the Agent and the Banks hereby agree as set forth
herein.
WITNESSETH:
WHEREAS, the Borrowers, the Agent and certain of the Banks are parties
to the Second Amended and Restated Credit Agreement dated as of July 23, 1997
(the "1997 Credit Agreement"); and
WHEREAS, the Borrowers have requested that the 1997 Credit Agreement
be further amended, and the parties hereto have agreed to do so on the terms
and conditions set forth herein; and
WHEREAS, Williams Communications Group, Inc. ("WCG") intends to become
a Borrower pursuant to the 1997 Credit Agreement and the Banks have agreed to
the inclusion of WCG in such capacity subject to the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers, the
Agent and the Banks agree as follows:
1. Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the 1997 Credit Agreement shall have the
same meanings whenever used in this Amendment.
2. The definition of "Applicable Margin" as listed in ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS is hereby amended as follows:
(a) Clause (i) of the definition of "Applicable Margin" is hereby
amended and restated in its entirety to read as follows:
<PAGE> 72
(i) as to any Eurodollar Rate Advance to any Borrower (other than (x)
WilTel during such times as WilTel is Unrated and (y) WCG at any time),
the rate per annum set forth in Schedule XI under the heading
"Applicable Margin" for the relevant Rating Category applicable to such
Borrower from time to time;
(b) Clause (iii) of the definition of "Applicable Margin" is hereby
amended and restated in its entirety to read as follows:
(iii) for each day during such times as WilTel is Unrated, as to any
Eurodollar Rate Advance to WilTel at such times subsequent to January
26, 1999, the rate per annum set forth in the following table for the
relevant Applicable WilTel Debt to EBITDA Ratio for such day:
<TABLE>
<CAPTION>
Applicable Margin
Applicable If 50% or less If more than 50%
WilTel Debt to of Commitment of Commitment
EBITDA Ratio drawn drawn
-------------- -------------- ----------------
<S> <C> <C>
Less than or equal to 1.0 .375% .500%
Greater than 1.0 and less .500% .625%
than or equal to 1.75
Greater than 1.75 and less .625% .750%
than or equal to 2.5
Greater than 2.5 and less .750% .875%
than or equal to 3.5
Greater than 3.5 and less 1.00% 1.125%
than or equal to 4.5
Greater than 4.5 and less 1.25% 1.50%
than or equal to 5.5
Greater than 5.5 1.50% 2.00%
</TABLE>
(c) The following clause (iv) is added to the definition of "Applicable
Margin" immediately following clause (iii) of such definition:
2
<PAGE> 73
and (iv) as to any Eurodollar Rate Advance to WCG as Borrower, the
Applicable Margin in effect with respect to WHD on such date, as
determined pursuant to clause (i) of this definition.
3. The definition of "WilTel" as listed in ARTICLE I DEFINITIONS AND
ACCOUNTING TERMS is hereby deleted and replaced with the following:
"WilTel" means Williams Communications Solutions, LLC, a Delaware
limited liability company.
4. The definition of "Borrowers" as listed in ARTICLE I DEFINITIONS AND
ACCOUNTING TERMS is hereby amended to delete WPL and to add "WCG".
5. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS is hereby amended to add
the following terms:
"Guaranty" means that certain guaranty dated January 26, 1999 duly
executed and delivered to the Agent by WHD in substantially the form
of Exhibit I.
"Permitted WCG Liens" means Liens specifically described on
Schedule IX-A.
"WCG" means Williams Communications Group, Inc., a Delaware
corporation.
6. Section 3.02 Additional Conditions Precedent to Each A Borrowing is
hereby amended to add the following subpart (a)(iv):
(a)(iv) The Guaranty has been executed and delivered by WHD and
remains in full force and effect.
7. Section 3.03 Conditions Precedent to Each B Borrowing is hereby
amended to add the following subpart (iii)(a)(5):
(iii)(a)(5) The Guaranty has been executed and delivered by WHD and
remains in full force and effect.
8. Section 4.1 Representations and Warranties is hereby amended by
adding thereto the following additional clause (n):
(n) The Borrower has (i) reviewed the areas within its business and
operations and those of its Subsidiaries which could be adversely
affected by failure to become "Year 2000 Compliant" (that is, that
computer applications, imbedded microchips and other systems
3
<PAGE> 74
used by any of the Borrower or its Subsidiaries or their material
vendors, will be able properly to recognize and perform date-sensitive
functions involving certain dates prior to and any date after December
31, 1999); (ii) developed a detailed plan and timetable to become Year
2000 Compliant in a timely manner; and (iii) committed adequate
resources to support its plan to become Year 2000 Compliant in a timely
manner. Based on such review and plan the Borrower reasonably believes
that it and its Subsidiaries will become Year 2000 Compliant on a
timely basis except to the extent that a failure to do so would not
reasonably be expected to have a material adverse effect on the
business, assets or financial condition of the Borrower and its
Subsidiaries, taken as a whole, or on the ability of the Borrower to
perform its obligations hereunder.
9. Section 5.02 Negative Covenants, is hereby amended as follows:
(a) By adding to clause (a) Liens, Etc. thereof the following
additional subclause:
(viii) WCG and its Non-Borrowing Subsidiaries may create, incur, assume
or suffer to exist Permitted WCG Liens (b) By deleting subparts (b)
Debt, (i) and (ii) and replacing them with the following:
(b) Debt. (i) in the case of TWC, permit the ratio of (A) the
aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed (1) 0.7 to 1.0 at any time during the
period beginning on January 1, 1999 through December 31, 2000, (2)
0.675 to 1.0 at any time during the period beginning on January 1, 2001
through December 31, 2001, or (3) 0.65 to 1.0 at any time during the
period beginning on January 1, 2002 through the term of this Agreement;
(ii) in the case of WHD, permit the ratio of (A) the aggregate
amount of all Debt of WHD and its Subsidiaries on a Consolidated basis
to (B) the sum of the Consolidated Net Worth of WHD plus the aggregate
amount of all Debt of WHD and its Subsidiaries on a consolidated basis
to exceed (1) 0.6 to 1.0 at any time during the period beginning on
January 1, 1999 through December 31, 2000, (2) 0.575 to 1.0 at any time
during the period beginning on January 1, 2001 through December 31,
2001, or (3) 0.55 to 1.0 at any time during the period beginning on
January 1, 2002 through the term of this Agreement; and
4
<PAGE> 75
(c) By adding in clause (f) Maintenance of Ownership of Certain
Subsidiaries immediately after the reference to "WilTel" in phrases (1)
and (2) of such clause (f) a reference to WCG.
(d) By amending and restating subpart (vii) of clause (j) Sale and
Lease-Back Transactions to read as follows:
(vii) paragraph (x) of Schedule IX in the case of WilTel and its
Subsidiaries or Schedule IX-A in the case of WCG and its Subsidiaries.
10. Section 6.01 Events of Default is hereby amended by adding the word
"or" after the semi-colon ending clause (i) thereof and adding the following
clause (j) to such Section 6.01:
(j) As to WCG as Borrower, the Guaranty shall (except in accordance
with its terms), in whole or in part, terminate, cease to be effective
or cease to be the legally valid, binding and enforceable obligation of
WHD as guarantor thereunder; any Borrower or any Subsidiary or
Affiliate of a Borrower shall, directly or indirectly, contest in any
manner such effectiveness, validity, binding nature or enforceability;
11. Schedule II "Borrower Information" is hereby amended by adding
thereto the following information: Williams Communications Group, One Williams
Center, Suite 4800, Tulsa, Oklahoma 74172, Attention:
Patti J. Kastl, Telecopier: (918) 588-4755.
12. Schedule IX-A "Permitted WCG Liens" is hereby added to the 1997
Credit Agreement in the form of Schedule IX-A attached hereto.
13. The total Commitments of the Banks to WCG shall be in the aggregate
amount of $400,000,000 and each Bank's Commitment to WCG as of the date hereof
shall be forty percent (40%) of its Commitment to WHD pursuant to the 1997
Credit Agreement as hereby amended. Schedule X of the 1997 Credit Agreement is
hereby deemed to be amended to add such Commitment of each Bank to WCG thereto
and to delete the Commitment of each Bank to WPL.
14. Schedule XI "Rating Categories" is hereby deleted in its entirety
and replaced with the Schedule XI attached to this Amendment.
15. Exhibit I "Form of Guaranty", attached to this Amendment, is hereby
added to the Agreement as Exhibit I.
16. To induce the Banks, the Co-Agents and the Agent to enter into this
Amendment, each of the Borrowers hereby reaffirms and WCG makes with respect to
itself, as of the date
5
<PAGE> 76
hereof, those representations and warranties contained in Article IV of the 1997
Credit Agreement (except to the extent such representations and warranties
relate solely to an earlier date) and additionally each Borrower represents and
warrants as follows:
(a) The execution, delivery and performance by WCG of this Amendment
and its Notes and the consummation of the transactions contemplated by this
Amendment are within WCG's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) WCG's charter or by-laws, or
(ii) law or any contractual restriction binding on or affecting WCG and will not
result in or require the creation or imposition of any Lien prohibited by the
1997 Credit Agreement, as amended hereby. At the time of each borrowing of any
Advance by WCG, such borrowing and the use of the proceeds of such Advance will
be within WCG's corporate powers, will have been duly authorized by all
necessary corporate action, will not contravene (i) WCG's charter or by-laws, or
(ii) law or any contractual restriction binding on or affecting WCG and will not
result in or require the creation or imposition of any Lien prohibited by the
1997 Credit Agreement, as amended hereby.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by WCG of this Amendment or its
Notes, or the performance of the 1997 Credit Agreement as amended hereby or the
consummation of the transactions contemplated by this Amendment and the 1997
Credit Agreement as hereby amended. At the time of each borrowing of any Advance
by WCG, no authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body will be required for
such borrowing or the use of the proceeds of such Advance.
(c) This Amendment has been duly executed and delivered by WCG. This
Amendment and the 1997 Credit Agreement, as amended hereby, are the legal, valid
and binding obligations of WCG enforceable against WCG in accordance with their
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors? rights generally and by general principles of equity. The A Notes of
WCG are, and when executed the B Notes of WCG will be, the legal, valid and
binding obligations of WCG enforceable against WCG in accordance with their
respective terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors? rights generally and by general principles of equity.
(d) The execution, delivery and performance by WHD of its Guaranty and
the consummation of the transactions contemplated by this Amendment and such
Guaranty are within WHD's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) WHD's charter or by-laws, or
(ii) law or any contractual restriction binding on
6
<PAGE> 77
or affecting WHD and will not result in or require the creation or imposition of
any Lien prohibited by the 1997 Credit Agreement, as amended hereby.
(e) The Guaranty and this Amendment have each been duly executed and
delivered by WHD and each constitutes the legal, valid and binding obligations
of WHD enforceable against WHD in accordance with its respective terms, except
as such enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors? rights generally
and by general principles of equity.
(f) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by WHD of this Amendment or its
Guaranty or the consummation of the transactions contemplated by this Amendment
or its Guaranty.
(g) The execution, delivery and performance by each Borrower other than
WCG (such Borrowers the "Existing Borrowers") of this Amendment and the
consummation of the transactions contemplated by this Amendment are within such
Existing Borrower's corporate or limited liability company powers, have been
duly authorized by all necessary corporate or limited liability company action,
do not contravene (i) such Existing Borrower's charter, by-laws, or formation
agreement, or (ii) law or any contractual restriction binding on or affecting
such Existing Borrower and will not result in or require the creation or
imposition of any Lien prohibited by the 1997 Credit Agreement, as amended
hereby.
(h) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by any Existing Borrower of this
Amendment or the consummation of the transactions contemplated by this
Amendment.
(i) This Amendment has been duly executed and delivered by each
Existing Borrower. This Amendment is the legal, valid and binding obligation of
each Existing Borrower enforceable against each Existing Borrower in accordance
with its terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors? rights generally and by general principles of equity.
17. The obligation of each Bank to make its initial Advance to WCG on
or after the date hereof is conditioned on the receipt by the Agent on or before
the date of such Advance of the following:
7
<PAGE> 78
(a) A certificate of the Secretary or an Assistant Secretary of WCG as
to (i) its by-laws and all changes which have been made, if any, to its
Certificate of Incorporation since the date of certification of such Certificate
delivered pursuant to item (b) below, (ii) resolutions of the Board of Directors
or the Executive Committee thereof then in full force and effect authorizing the
borrowing in an amount equal to or greater than $400,000,000 and the execution,
delivery and performance of such documents, certificates and notes and all other
actions necessary to effect such and (iii) the incumbency and signatures of
those of its officers authorized to act with respect to this Amendment;
(b) A copy of the Certificate of Incorporation of WCG, certified by the
Secretary of State of Delaware and attesting to its existence and good standing;
(c) A certificate of the Secretary or an Assistant Secretary of WHD as
to (i) its by-laws, (ii) resolutions of the Board of Directors or Executive
Committee thereof then in full force and effect authorizing the execution,
delivery and performance of the Guaranty, and (iii) the incumbency and
signatures of those of its officers authorized to act with respect to this
Amendment and the Guaranty;
(d) The A Notes of WCG, duly executed to the order of each of the
respective Banks, substantially in the form of Exhibit A-1 to the 1997 Credit
Agreement in the aggregate principal amount of $400,000,000;
(e) The Guaranty, duly executed by WHD; and
(f) An opinion of William G. von Glahn, General Counsel of TWC,
delivered on behalf of WCG and WHD substantially in the form of Exhibit A
attached hereto.
18. The 1997 Credit Agreement as hereby amended is hereby ratified and
confirmed in all respects. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Agent or the Banks under the 1997 Credit
Agreement. All references to the Credit Agreement in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to the 1997
Credit Agreement as amended hereby.
19. The provisions of the 1997 Credit Agreement not specifically
amended herein will be interpreted so as to be consistent with this Amendment;
if, however, any discrepancy exists between such provisions in the 1997 Credit
Agreement and this Amendment, such discrepancy shall be resolved in favor of
this Amendment.
8
<PAGE> 79
20. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, IN ALL
RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND PERFORMANCE.
21. This Amendment shall be effective as of January 26, 1999 and shall
be binding upon the parties hereto and upon their respective successors, heirs
and permitted assigns.
22. This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument, and any
party hereto may execute this Amendment by signing one or more counterparts.
9
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
THE WILLIAMS COMPANIES, INC. TEXAS GAS TRANSMISSION
CORPORATION
By: By:
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- -----------------------------
TRANSCONTINENTAL GAS PIPE LINE WILLIAMS COMMUNICATIONS
CORPORATION GROUP, INC.
By: By:
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- -----------------------------
WILLIAMS HOLDINGS OF DELAWARE, WILLIAMS COMMUNICATIONS
INC. SOLUTIONS, L.L.C.
By: By:
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- -----------------------------
NORTHWEST PIPELINE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 81
AGENT:
CITIBANK, N.A., as Agent
By:
------------------------------
Title:
---------------------------
BANKS:
CITIBANK, N.A. CREDIT LYONNAIS NEW YORK BRANCH
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
BANK OF AMERICA NATIONAL TRUST THE FIRST NATIONAL BANK OF
AND SAVINGS ASSOCIATION CHICAGO
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
THE CHASE MANHATTAN BANK BANK OF MONTREAL
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
CIBC INC. THE BANK OF NEW YORK
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
THE BANK OF NOVA SCOTIA
By:
------------------------------
Title:
---------------------------
<PAGE> 82
BARCLAYS BANK PLC SOCIETE GENERALE, SOUTHWEST AGENCY
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
BANKBOSTON, N.A. WELLS FARGO BANK, N.A.
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
THE FUJI BANK, LIMITED, HOUSTON BANK OF OKLAHOMA, N.A.
AGENCY
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
MELLON BANK, N.A. COMMERCE BANK, N.A.
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
MORGAN GUARANTY TRUST CREDIT AGRICOLE INDOSUEZ
COMPANY OF NEW YORK
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
ROYAL BANK OF CANADA SUNTRUST BANK, ATLANTA
By: By:
------------------------------ ------------------------------
Title: Title:
--------------------------- ---------------------------
<PAGE> 83
INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By:
------------------------------
Title:
---------------------------
THE SAKURA BANK, LIMITED
By:
------------------------------
Title:
---------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
------------------------------
Title:
---------------------------
UBS AG, STAMFORD BRANCH
By:
------------------------------
Title:
---------------------------
NATIONS BANK N.A.
By:
------------------------------
Title:
---------------------------
<PAGE> 1
EXHIBIT 10.17
Confidential - WinStar/Williams
WIRELESS FIBERsm IRU AGREEMENT
BY AND BETWEEN
WINSTAR WIRELESS, INC.
AND
WILLIAMS COMMUNICATIONS, INC.
Effective as of December 17, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS..................................................................................................1
1.1. Particular Terms...........................................................................................1
1.2. Other Terms................................................................................................4
2. SCOPE AND STRUCTURE..........................................................................................4
2.1. General....................................................................................................4
2.2. Term.......................................................................................................5
2.3. Strategic Relationship.....................................................................................5
3. GRANTS, RIGHTS AND RESPONSIBILITIES..........................................................................6
3.1. WinStar Grant, Rights and Responsibilities.................................................................6
3.2. WinStar Acceptance and Testing.............................................................................7
3.3. Control of Facilities......................................................................................7
3.4. Provisioning of Williams T-1s..............................................................................8
3.5. Service Orders for Williams T-1s...........................................................................9
3.6. Changes in Service Parameters.............................................................................10
3.7. Delivery of Minimum Williams T-1 Inventory................................................................10
4. OTHER PERFORMANCE AND SERVICES..............................................................................11
4.1. Interconnection...........................................................................................11
4.2. Collocation...............................................................................................11
4.3. Maintenance...............................................................................................11
4.4. Routine Maintenance.......................................................................................11
4.5. Non-Routine Maintenance...................................................................................12
4.6. Subcontractors............................................................................................12
4.7. Williams Equipment........................................................................................12
4.8. Performance Standards.....................................................................................12
4.9. Disengagement Assistance..................................................................................12
4.10. Relocation................................................................................................12
4.11. Ancillary Services........................................................................................13
5. CONTRACT ADMINISTRATION.....................................................................................13
5.1. Reports and Meetings......................................................................................13
5.2. Confidentiality...........................................................................................14
6. CHARGES.....................................................................................................16
6.1. General...................................................................................................16
6.2. Taxes.....................................................................................................16
6.3. Pass-Through Expenses.....................................................................................17
6.4. Most Favored Customer Status..............................................................................17
6.5. Benchmarking..............................................................................................18
7. INVOICING AND PAYMENT.......................................................................................18
7.1. Invoicing.................................................................................................18
7.2. Payment Due...............................................................................................18
7.3. Disputed Charges..........................................................................................19
7.4. Late Interest.............................................................................................19
8. COVENANTS, REPRESENTATIONS AND WARRANTIES...................................................................19
8.1. Non-Infringement..........................................................................................19
8.2. Authorization.............................................................................................19
8.3. Wireless Fiber Connectivity...............................................................................20
8.4. Disclaimer................................................................................................20
9. INDEMNIFICATION.............................................................................................20
9.1. Indemnities by Williams...................................................................................20
9.2. Indemnities by WinStar....................................................................................21
9.3. Indemnification Procedures................................................................................22
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
10. LIABILITY, RISK OF LOSS AND INSURANCE.......................................................................22
10.1. General Intent............................................................................................22
10.2. Liability Restrictions....................................................................................23
10.3. Insurance Requirements....................................................................................23
10.4. Risk of Loss..............................................................................................24
10.5. Force Majeure.............................................................................................24
11. REMEDIES AND DISPUTE RESOLUTION.............................................................................25
11.1. Cumulative Nature.........................................................................................25
11.2. Informal Dispute Resolution...............................................................................25
11.3. Arbitration...............................................................................................26
11.4. Termination...............................................................................................27
11.5. Suspension of Service.....................................................................................27
11.6. Litigation................................................................................................27
11.7. Continued Performance.....................................................................................28
12. GENERAL.....................................................................................................28
12.1. Binding Nature and Assignment.............................................................................28
12.2. Entire Agreement..........................................................................................28
12.3. Tariff....................................................................................................28
12.4. Consents..................................................................................................29
12.5. Restriction of Transmissions..............................................................................29
12.6. Use and Ownership.........................................................................................29
12.7. Non-Solicitation..........................................................................................29
12.8. Notices...................................................................................................29
12.9. Counterparts..............................................................................................30
12.10. Relationship of Parties...................................................................................30
12.11. Severability..............................................................................................30
12.12. Reasonableness, Consents and Approval.....................................................................30
12.13. Waiver of Default.........................................................................................30
12.14. Survival..................................................................................................31
12.15. Public Disclosures........................................................................................31
12.16. Third Party Beneficiaries.................................................................................31
12.17. Amendment.................................................................................................31
12.18. Order of Precedence.......................................................................................31
12.19. Interpretation............................................................................................32
12.20. Covenant of Good Faith....................................................................................32
</TABLE>
ii
<PAGE> 4
WIRELESS FIBERsm IRU AGREEMENT
BY AND BETWEEN
WINSTAR WIRELESS, INC.
AND
WILLIAMS COMMUNICATIONS, INC.
This WIRELESS FIBER IRU AGREEMENT (including the Exhibits and Schedules
attached hereto, the "Agreement"), effective as of December 17, 1998 (the
"Effective Date"), is entered into by and between WINSTAR WIRELESS, INC., a
Delaware corporation with offices located at 230 Park Avenue, New York, New York
10169 ("WinStar"), and WILLIAMS COMMUNICATIONS, INC., a Delaware corporation
with offices located at One Williams Center, Tulsa, Oklahoma 74172 ("Williams").
WHEREAS, WinStar is a fixed wireless services telecommunications
provider currently planning to build-out in the domestic major metropolitan
markets set forth in Exhibit A-1;
WHEREAS, Williams is a provider of high capacity long haul fiber optic
network transport and desires to utilize WinStar's Wireless Fiber Connectivity
(as hereinafter defined) in conjunction with its long haul network services; and
WHEREAS, upon the terms and subject to the conditions set forth below,
Williams desires to acquire from WinStar, and WinStar desires to provide to
Williams, an exclusive, indefeasible right to use certain of WinStar's Wireless
Fiber Connectivity on a private, non-common-carrier basis.
NOW THEREFORE, in consideration of the mutual promises set forth below
and other good and valid consideration, the receipt of which is hereby
acknowledged, WinStar and Williams (collectively, the "Parties" and each, a
"Party") agree as follows:
1. DEFINITIONS
1.1. Particular Terms.
As used in this Agreement:
(a) "Acceptance" has the meaning set forth in Exhibit A-4.
(b) "Acceptance Date" means, for each Hub, the date of Acceptance as
provided in Exhibit A-4.
(c) "Acceptance Standards" means the standards set forth in Exhibit
A-4 with respect to the testing of the Hubs.
(d) "Affiliate" means, with respect to any entity, any other entity
that directly, or indirectly through one or more intermediaries,
Controls, or is Controlled by, or is under common Control with,
such entity.
1
<PAGE> 5
(e) "Agreement" has the meaning set forth in the preamble to this
Agreement.
(f) "Confidential Information" has the meaning set forth in Section
5.2.
(g) "Control" and its derivatives means legal, beneficial or
equitable ownership, directly or indirectly, of more than fifty
percent (50%) of outstanding voting capital stock (or other
ownership interest, if not a corporation) of an entity or
management or operational control over such entity.
(h) "Cost" means actual, direct costs incurred and computed in
accordance with the established accounting procedures used by
WinStar to bill third parties for reimbursable projects. All
Costs shall be computed in accordance with generally accepted
accounting principles. Such actual, direct costs include:
(i) Labor costs, including wages and salaries, and benefits,
plus the overhead allocable to such labor costs (overhead
allocation percentage shall not exceed the lesser of: (i)
the percentage WinStar allocates to its internal projects;
or (ii) thirty percent (30%)); and
(ii) Other direct costs and Out-of-Pocket Expenses on a
Pass-Through Expenses basis (such as equipment, materials,
supplies, contract services, costs of capital, Required
Rights, sales, use or similar taxes, etc.) plus ten percent
(10%) of such expenses, but
(iii) Less any cost or expense reimbursed by a third party.
(i) "Domestic Hub Capacity" means, at the time in question, the
aggregate capacity of WinStar's deployed Hubs within the United
States.
(j) "Effective Date" has the meaning set forth in the preamble to
this Agreement.
(k) "Governmental Authorizations" means all licenses, permits and
authorizations from the Federal Communications Commission,
Federal Aviation Administration, state public utility
commissions, municipal authorities or any other governmental body
that are materially necessary or required for or used in the
business and operations of WinStar or the provision of the
Wireless Fiber Connectivity.
(l) "Hub" has the meaning set forth in Schedule A.
(m) "Indefeasible Right of Use" or "IRU" means an exclusive,
indefeasible right to use the specified Wireless Fiber
Connectivity as contemplated by this Agreement.
(n) "Intellectual Property Rights" means patent, copyright,
trademark, trade secret or other proprietary rights with respect
to any work product in which such rights could inure.
2
<PAGE> 6
(o) "Lit Building" means a building that, at the time in question, is
either a Hub provided by WinStar or equipped with a radio
connection to a Hub provided by WinStar utilizing spectrum in
which WinStar holds a license.
(p) "Losses" means all liabilities, damages and related costs and
expenses (including fines, levies, assessments, reasonable legal
fees and disbursements and costs of investigation, litigation,
settlement, judgment, interest and penalties) directly incurred
by a Party.
(q) "Maintenance" means the network operations, administration and
maintenance required for the continued performance of the WinStar
Fiberless Connectivity.
(r) "Minimum Williams T-1 Inventory" has the meaning set forth in
Exhibit A-6.
(s) "Out-of-Pocket Expenses" means reasonable and actual
out-of-pocket expenses incurred by a Party, but not including
that Party's overhead costs (or allocations thereof),
administrative expenses or other mark-ups.
(t) "Party" and "Parties" have the meanings set forth in the preamble
to this Agreement.
(u) "Pass-Through Expenses" means certain WinStar expenses, as agreed
to between the Parties in writing, which Williams agrees to pay
directly or reimburse on an Out-of-Pocket Expenses basis.
(v) "Prime Rate" means, in respect of any period, the rate published
as Chase Manhattan's prime rate in the Wall Street Journal, or
any successor publication thereto, from time to time during such
period.
(w) "Pro Rata Share" means a proportion equal, for Williams, to the
Williams Connectivity and, for WinStar, the complement of the
Williams Connectivity.
(x) "Qualified Building" means a building that, at the time in
question, has a verified line of sight (per WinStar's standard
practices) to a Hub provided by WinStar and for which the
necessary Required Rights have been obtained by, or provided to,
WinStar.
(y) "Required Rights" means leases or licenses for access to, and use
of, building roof areas and other antenna staging locations and
interior space and conduit rights as necessary to provide
Wireless Fiber Connectivity to a building.
(z) "Sector" means an area of coverage emanating off a
point-to-multipoint radio on a Hub.
(aa) "Sector Capacity" of any given Hub means, as of the date in
question, the transport capacity of the relevant Sector of that
Hub.
(bb) "Start Date" means, with respect to any Williams T-1, the first
day on which such service is provided.
(cc) "T-1" means a circuit (wire, fiber or spectrum) with a capacity
of 1.544 Mbps.
3
<PAGE> 7
(dd) "Term" has the meaning set forth in Section 2.2.
(ee) "Williams" has the meaning set forth in the preamble to this
Agreement.
(ff) "Williams Connectivity" has the meaning given in Exhibit A-6.
(gg) "Williams IRU" has the meaning given in Section 3.1(a).
(hh) "Williams T-1" has the meaning given in Section 3.1(a). Each such
circuit shall traverse any two end-points on the WinStar network
(e.g., at the common space in a Lit Building or at a local
WinStar point of presence) and shall be deemed provided when
approved by Williams in accordance with Section 3.5(e).
(ii) "WinStar" has the meaning set forth in the preamble to this
Agreement.
(jj) "WinStar Equipment" means the telecommunications equipment used
by WinStar to implement the Wireless Fiber Connectivity.
(kk) "WinStar Target Market" means a city listed in Exhibit A-2 where
WinStar has at least one Hub to provide the Wireless Fiber
Connectivity, which list may be amended by WinStar from time to
time with notice to Williams (in accordance with Exhibit A-2).
(ll) "Wireless Fiber Connectivity" means the Wireless Fibersm
connectivity, which WinStar is authorized to provide at certain
licensed radio frequency bandwidths.
1.2. Other Terms.
Other terms used in this Agreement are defined in the context in which
they are used and have the meanings there indicated.
2. SCOPE AND STRUCTURE
2.1. General.
(a) This Agreement sets forth the general terms and conditions under
which WinStar grants Williams specific rights to certain capacity
within the deployed Wireless Fiber Connectivity.
(b) The Parties acknowledge that this Agreement does not grant to
WinStar an exclusive privilege to sell or otherwise provide to
Williams any or all of the transport and services of the type
described in this Agreement. Williams may contract with other
suppliers for the procurement of comparable transport or
services. Subject to the Williams IRU granted by WinStar under
this Agreement, WinStar is not restricted from selling to other
entities any types of transport or services including the types
of transport or services that are provided to Williams hereunder.
4
<PAGE> 8
2.2. Term.
The term of this Agreement (the "Term"), with respect to each of the
initial two hundred and seventy (270) Hubs implemented by WinStar,
shall begin on the corresponding Acceptance Date and continue in
effect for twenty-five (25) years from that time.
2.3. Strategic Relationship.
(a) Resale of WinStar Product. Pursuant to terms to be agreed upon by
the Parties after the Effective Date, WinStar will grant Williams
the right to market and promote certain WinStar voice and data
products (e.g., wireless capacity, professional services and
Internet connectivity) through its sales channel.
(b) Williams-Provided Roof Rights and Building Access. If requested
by WinStar, Williams shall grant to WinStar, at no cost,
appropriate roof, riser, conduit rights and interior space (in
each case, in quantities to be mutually agreed upon on a
case-by-case basis) rights to buildings in the United States for
which Williams owns, leases or occupies, in whole or in part,
that Williams can obtain (at reasonable cost) or has such rights.
In addition, Williams shall assist WinStar in obtaining such
rights with respect to other buildings in the United States
leased or occupied, in whole or in part, by Williams or its
Affiliates, including by actively conveying to those Affiliates
the strategic and important nature of the relationship with
WinStar. Williams shall provide (and periodically update as
reasonably requested by WinStar) WinStar with a written list of
the addresses of all such real estate.
(c) Mutual Marketing Support. WinStar will provide Williams
reasonable marketing support in connection with Williams' sale of
the Williams T-1s and other WinStar voice and data products.
(d) Provisioning and Billing OSS. The Parties will work together in
order to interface their then-current provisioning and billing
operational support system information (e.g., network events and
statistics). The reasonable costs associated with these
activities shall be mutually shared between the Parties. If,
after consultation with Williams, WinStar is required to provide
provisioning and billing information unique to Williams'
wholesale activities, the reasonable costs of providing such
information shall be borne by Williams.
(e) Regulatory Assistance. If either Party affirmatively takes a
position in the domestic regulatory environment, it will be in
favor of a level playing field and in support of competition, as
such Party determines in its sole discretion. The Parties shall
periodically (but at least semi-annually) meet to discuss their
plans and objectives with respect to the regulatory environment.
3. GRANTS, RIGHTS AND RESPONSIBILITIES
3.1. WinStar Grant, Rights and Responsibilities.
(a) Effective as of the Acceptance Date, WinStar hereby grants to
Williams an exclusive Indefeasible Right of Use (the "Williams
IRU"), for the purposes described herein, in the Williams
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Connectivity as expressed in T-1 increments over time, as
provided in Exhibit A-6 (the "Williams T-1s"), subject to the
additional limitations set forth in Subsection (c) below. Such
grant does not convey any legal title to any real or personal
property, including the spectrum, physical equipment and
connections used to effect the Domestic Hub Capacity.
(b) Subject to the terms of this Agreement, Williams shall have
exclusive use of the Williams T-1s for any lawful purpose during
the Term.
(c) In addition to the Williams Connectivity limitation set forth in
Section 3.1(a), the Williams T-1s shall be subject to the
following limitations:
(i) Williams T-1s from any Lit Building that is connected to the
WinStar Hub through a point-to-point radio link may go up to
but shall not exceed fifteen percent (15%) of the bandwidth
capacity provided to that building notwithstanding WinStar's
usage of any or all of such capacity in that building.
(ii) Williams T-1s that are to be implemented using
point-to-multipoint links between Lit Buildings in a Sector
and a WinStar Hub may go up to but shall not exceed fifteen
percent (15%) of the relevant Sector Capacity of that Hub
notwithstanding WinStar's usage of any or all of such Sector
Capacity in the Sector.
(iii)For Qualified Buildings lit at Williams' expense pursuant to
Section 3.4(b)(ii), the limitation set forth in Subsection
(c)(i), if applicable, shall be increased to fifty percent
(50%) for buildings lit point-to-point. In addition, only
seventy-five percent (75%) of the Williams T-1s in such
buildings will count towards the Williams Connectivity
limitation set forth in Subsection (a) above.
(iv) In accordance with Section 3.6, each Williams T-1 shall
count against the limitations set forth above for one (1)
year, regardless of whether or not the duration of its
connectivity lasts less than one (1) year. After its first
year of connectivity, each Williams T-1 shall count against
such limitations until disconnected.
(v) Williams may order Williams Connectivity only in multiples
of T-1 line speeds. Orders for line speeds higher than T-1
will count proportionately toward the limitations set forth
in this Subsection (c). For example, a DS-3 will count as
twenty-eight (28) T-1s. Apart from the applicability of the
limitations, the line speeds of the circuits constituting
the Williams Connectivity shall have no effect on the
respective rights and obligations of the Parties.
3.2. WinStar Acceptance and Testing.
(a) As of the Effective Date, Williams hereby agrees that Acceptance
of the initial fifty-seven (57) Hubs (the "Initial Hubs")
deployed by WinStar is deemed to have occurred. WinStar
represents and warrants that the Initial Hubs have met the
Acceptance Standards as of the Effective Date.
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(b) Prior to the use of each Hub deployed by WinStar following the
Effective Date, WinStar will have performed testing procedures in
accordance with Exhibit A-4, which are sufficient to verify
compliance with Acceptance Standards. Acceptance of each such Hub
shall occur as set forth in Exhibit A-4.
3.3. Control of Facilities.
Notwithstanding any other provision of this Agreement, WinStar has and
shall at all times continue to retain control over all FCC licenses,
equipment and facilities subject to this Agreement and shall have, at
all times, required access to all of the equipment and facilities
installed by it pursuant to this Agreement. In exercising this
control, WinStar will not disturb or interfere with the Williams T-1s
without good cause, such as a request from the FCC to shut down
interfering transmissions, emergency service restoration or correction
of other technical problems. WinStar shall provide Williams with as
much prior notice as is reasonably practicable in the case of
emergency disruptions of the Wireless Fiber Connectivity. WinStar
shall, with the reasonable cooperation and assistance of Williams, (i)
operate its business in all material respects in accordance with the
terms of the Governmental Authorizations and (ii) maintain the
validity of the Governmental Authorizations. WinStar agrees to provide
Williams with notice in the event matters come to WinStar's attention
that could materially prevent it from meeting its obligations under
this Agreement. In this regard, WinStar and Williams further agree as
follows:
(a) Williams shall not represent itself as the holder of any FCC
licenses issued to WinStar.
(b) Any communications by either Party with the FCC regarding the
subject matter of this Agreement shall require the other's prior
written approval.
(c) Neither WinStar nor Williams shall represent itself as the legal
representative of the other before the FCC or any state
regulatory body. Except as otherwise required by law, all filings
made before regulatory bodies with respect to WinStar's license
or the services provided hereunder shall be made by and in the
name of WinStar. WinStar and Williams will cooperate with each
other with respect to regulatory matters concerning WinStar's
licenses and the services provided pursuant to this Agreement;
provided, however, this will not relieve WinStar from complying
with the Governmental Authorizations.
(d) Nothing in this Agreement is intended to diminish or restrict
WinStar's obligations as an FCC licensee and both Parties desire
that this Agreement be in full compliance with the rules and
regulations of the FCC and any state or local jurisdiction. If
the FCC or any state regulatory body of competent jurisdiction
determines that any provision of this Agreement violates any
applicable rules, policies or regulations, both Parties shall
bear their respective Pro Rata Share of costs to immediately
bring this Agreement into compliance, consistent with the intent
of this Agreement.
(e) It is expressly understood by WinStar and Williams that nothing
in this Agreement is intended to give to Williams any right that
would be deemed to constitute a transfer of control (as "control"
is defined in the Communications Act of 1934, as amended, or any
applicable FCC rules or case law) of one or more of WinStar's
licenses from WinStar to Williams.
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3.4. Provisioning of Williams T-1s.
Except as otherwise provided in this Section 3.4, WinStar, at its own
expense, shall be solely responsible for obtaining and maintaining all
rights and privileges (including Required Rights, space and power)
that are necessary for WinStar to provide the Williams T-1s to the
WinStar common space.
(a) Subject to the limitations set forth in Section 3.1, Williams may
order T-1s to be connected to any Qualified Building (or a
building that would be a Qualified Building but for the obtaining
of Required Rights). If Williams orders Williams T-1s that are to
be connected to a Lit Building, WinStar will provision, on a
non-discriminatory basis, those T-1s to the common space at no
additional cost with an objective of completing that provisioning
within thirty (30) days from the date of Williams' order.
(b) If Williams orders Williams T-1s that are to be connected to a
Qualified Building (or a building that would be a Qualified
Building but for the obtaining of Required Rights) that is not a
Lit Building:
(i) WinStar shall determine within ninety (90) days of receipt
of notice from Williams whether, in its sole discretion, it
will light such building at its own expense. If WinStar so
elects, that notice shall set forth a target delivery date
and WinStar shall light that building and provision, on a
non-discriminatory basis, the T-1s to the common space with
the objective of completing such activities by the target
delivery date.
(ii) If WinStar elects not to light such building at its own
expense, WinStar will light the building upon Williams'
request, in accordance with a target delivery date
established by WinStar. Williams shall pay for such lighting
at WinStar's Cost of performance. Additionally, in such
event, Williams shall be responsible, with WinStar's
assistance, for obtaining and maintaining, at Williams'
expense, all necessary rights and privileges (including
Required Rights, space and power). Lighting, pursuant to
this Subsection 3.4(b)(ii), of more than five (5) buildings
connected to a single Hub, whether singly or in combination
over any period of time, shall be subject to WinStar's
approval which shall not be unreasonably withheld.
(c) When WinStar lights a building for provisioning a Williams T-1,
Williams will either:
(i) Perform inside wiring for its customers in such building
subject both to obtaining any necessary consents and to
WinStar's then-current installation guidelines and
specifications; or
(ii) Have WinStar perform such wiring at WinStar's Cost.
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3.5. Service Orders for Williams T-1s.
(a) The implementation of a Williams T-1 to a Lit Building shall be
requested on WinStar's Service Order forms in effect from time to
time ("Service Orders"). Each Service Order shall reference this
Agreement. WinStar reserves the right not to accept a Service
Order that does not conform with the terms and conditions of this
Agreement and such non-conforming Service Order shall have no
force or effect hereunder.
(b) Each Service Order will indicate a requested Start Date (the
"Requested Start Date") for the implementation of the Williams
T-1s to a Lit Building, the desired term of the Williams T-1s,
and any other parameters required. WinStar shall acknowledge
receipt of the Service Order, on average, within forty-eight (48)
hours (an "Acknowledgement").
(c) Once a Service Order is placed, Williams may cancel it only by
notice of cancellation not less than ten (10) days prior to
delivery of the corresponding Williams T-1, and payment of any
specified cancellation fee. Williams agrees that the actual
damages in the event of such cancellation would be difficult or
impossible to ascertain, and that the cancellation charge
including those set forth herein is consequently intended to
establish liquidated damages and not a penalty.
(d) Any conflicting, different or additional terms and conditions
contained in Williams' acknowledgment or Service Order or
elsewhere are deemed objected to by WinStar and shall not
constitute part of this Agreement. No action by WinStar
(including fulfillment of such Service Order) shall be construed
as binding or estopping WinStar with respect to such conflicting,
different or additional term or condition, unless the Service
Order containing said term or condition has been signed by an
authorized representative of WinStar.
(e) WinStar shall make reasonable efforts to provide the Williams
T-1s within the service implementation interval set forth in
Section 3.5(b) or by Williams' Requested Start Date. Williams
T-1s shall begin on the date WinStar issues notice that service
is available (the "Start of Service Notice" or "SOSN"),
indicating the Williams T-1 has been tested by WinStar in
accordance with WinStar's standard specifications and that the
service meets or exceeds those specifications.
(f) Williams may reasonably request one or more delays in the
Requested Start Date of a Service Order, a move, or rearrangement
if WinStar receives the delay request at least fifteen (15) days
prior to the Requested Start Date and the requested delay does
not extend the Requested Start Date more than thirty (30) days
from the original date thereof. If Williams delays the Requested
Start Date (or as gauged by the SOSN, if issued for a date after
the Requested Start Date) by more than thirty (30) days, the
Williams T-1s will count against the Minimum Williams T-1
Inventory and the Williams Connectivity for a period of one (1)
year. This count against the Minimum Williams T-1 Inventory and
Williams Connectivity will be effective thirty (30) days after
the Requested Start Date.
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3.6. Changes in Service Parameters.
Following the relevant Start Date for any Williams T-1, Williams may
disconnect or reconfigure that service upon sixty (60) days' prior
written notice. If that action relates to a Williams T-1 that has not
been in place for at least one (1) year from its Start Date, (i) such
Williams T-1 will continue to count against the Minimum Williams T-1
Inventory and Williams Connectivity for the remainder of the one (1)
year period; and (ii) Williams shall also pay WinStar the additional
charges incurred by WinStar that are associated with that
disconnection or reconfiguration. Subsection (ii) shall also apply
with respect to a cancellation as provided in Section 3.5(c).
3.7. Delivery of Minimum Williams T-1 Inventory.
(a) Availability Date. The "Availability Date" shall mean (i) the
Effective Date with respect to the Minimum Williams T-1 Inventory
identified in Exhibit A-6 to be provided to Williams as of the
Effective Date, and (ii) December 31st of each calendar year
following 1998 through the end of the Term with respect to each
annual number of Minimum Williams T-1 Inventory identified in
Exhibit A-6 for such calendar year. The "Deadline Date" shall be
sixty (60) days after the later of (i) such planned Availability
Date or (ii) the planned Availability Date as extended due to
unforeseen events not in the reasonable control of WinStar (other
than as due to WinStar's negligence), Force Majeure events or as
expressly permitted by this Agreement. WinStar shall make
available each of its annual Minimum Williams T-1 Inventories by
the applicable Deadline Date. WinStar shall give Williams as much
prior notice as reasonably possible if, to the best of WinStar's
knowledge, there is a foreseeable risk that it may miss a
Deadline Date for its Minimum Williams T-1 Inventory.
(b) Failure to Meet Deadline Date. If WinStar fails to make available
the Minimum Williams T-1 Inventory by its applicable Deadline
Date, and the Parties are unable, in good faith, to agree to an
alternative Deadline Date, Williams' sole and exclusive monetary
remedy for such failure shall be to obtain Cover (as hereinafter
defined) beginning on the Deadline Date for the number of T-1s
not made available. "Cover" shall be satisfied by obtaining, at
WinStar's expense, the number of T-1s that would have been
available had WinStar made available the entire applicable
Minimum Williams T-1 Inventory. Once WinStar makes such T-1s
available, the Parties will work together to migrate the T-1s to
WinStar at WinStar's sole cost and expense.
4. OTHER PERFORMANCE AND SERVICES
4.1. Interconnection.
(a) With respect to each of the WinStar Target Markets, the Parties
shall mutually determine the most efficient manner of providing
the required connectivity ("Interconnection") between the WinStar
and Williams points of presence, whether through then-existing
installed capacity, implementation of new capacity or third party
arrangements. In addition, the Parties shall set and periodically
review the schedule (timing and priority) of implementation of
those Interconnection facilities and shall adhere to that
schedule in implementing such facilities.
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(b) The Parties shall allocate the costs of each Interconnection
facility as follows:
(i) The Parties shall mutually agree upon a forecast of each
Party's usage of that Interconnection facility during the
first year after implementation (the "Forecast"). The
non-recurring costs associated with the implementation of
that facility and the recurring cost thereof in the first
month of operation (in aggregate, the "Start-up Costs") will
be allocated pro rata between the Parties based upon the
Forecast. One year thereafter the Parties shall re-calculate
the allocation of the Start-up Costs by substituting actual
usage during the preceding year in place of the Forecast.
Based upon that recalculation, Williams shall pay or receive
a refund, in either case equal to the difference between the
initial allocation of the Start-up Costs and the
recalculated amount, plus interest at the Prime Rate for the
applicable period.
(ii) On a quarterly basis, the Parties shall allocate the
periodic recurring costs of that Interconnection facility
pro rata between the Parties based upon actual usage during
the preceding quarter.
(iii)Following the Effective Date, the Parties will mutually
develop appropriate procedures to implement the foregoing.
4.2. Collocation.
Exhibit A-3 sets forth the collocation services, terms and conditions.
4.3. Maintenance.
WinStar shall be responsible for providing maintenance, repair and
testing on all WinStar Equipment used to provide the Williams T-1s, in
accordance with its then-current standard policies and procedures, a
portion of which is attached hereto as Exhibit A-4. Williams is
prohibited from providing any maintenance, repair or testing with
regard to WinStar Equipment.
4.4. Routine Maintenance.
During the Term, WinStar shall perform all required Routine
Maintenance Services at the charges set forth in Schedule C. "Routine
Maintenance Services" means the work specifically identified as
Routine Maintenance Services in Article 5 of Schedule A, provided that
Routine Maintenance Services excludes work for which Williams is
obligated to reimburse WinStar for all or a portion of the Costs
incurred pursuant to other provisions of this Agreement.
4.5. Non-Routine Maintenance.
Williams shall pay its Pro Rata Share of WinStar's direct Costs for
maintenance in respect of the Williams Connectivity other than Routine
Maintenance Services, if the Cost of such work relating to any single
event or multiple related events is greater than Five Thousand Dollars
($5,000.00).
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4.6. Subcontractors.
WinStar may subcontract provisioning, testing, maintenance, repair,
restoration, relocation or other operational and technical services it
is obligated to provide hereunder or may have the underlying facility
owner or its contractor perform such obligations. Such subcontracting
shall not relieve WinStar of any obligations under this Agreement.
4.7. Williams Equipment.
WinStar's maintenance and repair obligations under this Agreement
shall not include maintenance, repair or replacement of Williams'
equipment.
4.8. Performance Standards.
Except as otherwise set forth in Schedule B, for the purpose of this
Agreement the normal standards of performance within the
telecommunications industry in the relevant market shall be the
measure of whether a Party's performance is reasonable and timely.
4.9. Disengagement Assistance.
Upon termination or expiration of this Agreement, WinStar shall
provide Williams and its designated third party providers all
reasonable assistance as necessary to effect a smooth transition to a
new supplier.
4.10. Relocation.
(a) If WinStar determines for bona fide operational reasons, or is
required by a third party acting pursuant to condemnation or
similar authority or by a governmental entity, to relocate all or
any portion of a Hub or any of the facilities used or required in
providing Williams with the Williams IRU, WinStar shall, to the
extent practicable, provide Williams sixty (60) days' prior
notice and shall proceed with such relocation. WinStar shall have
the right to direct such relocation, including the right to
determine the extent of, the timing of, and methods to be used
for such relocation, provided that any such relocation:
(i) Shall be constructed and tested in accordance with the
specifications and requirements set forth in this Agreement
and applicable Exhibits;
(ii) Shall not result in a materially adverse change to the
operations or performance of the Hub, and
(iii) Shall not unreasonably interrupt service on the Hub.
For purposes of this Section 4.10, a WinStar relocation shall be
for bona fide operational reasons if it is undertaken in good
faith (i) to settle or avoid a bona fide threatened or filed
condemnation action or order by a governmental authority to
relocate, (ii) to reduce the likelihood of physical damage, (iii)
as the result of a Force Majeure Event, or (iv) for other
operational reasons to which Williams has consented, provided
that Williams shall not unreasonably withhold such consent.
WinStar shall use reasonable efforts to contest any exercise of
condemnation authority that would require a relocation pursuant
to this Section 4.10.
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(b) Unless such relocation is necessitated by a breach of WinStar's
obligations under this Agreement, Williams shall reimburse
WinStar for the Costs incurred in the same manner and to the same
extent as set forth for reimbursement for Costs of maintenance
other than for Routine Maintenance Services in Section 4.5.
4.11. Ancillary Services.
WinStar may also provide other services to Williams for reasons
including: (a) Williams' request to expedite Williams T-1 availability
to a date earlier than WinStar's published installation interval or a
previously accepted Start Date; (b) Williams T-1 redesign or other
activity occasioned by receipt of inaccurate information from
Williams; (c) Williams' request for use of facilities other than those
selected by WinStar for provision of the Wireless Fiber Connectivity
("facilities" for this purpose shall not include buildings that became
Lit Buildings pursuant to Section 3.4(b)(i)); and (d) other
circumstances in which extraordinary costs and expenses are generated
at the written request of Williams and incurred by WinStar
(collectively, "Ancillary Services").
5. CONTRACT ADMINISTRATION
5.1. Reports and Meetings.
(a) Within thirty (30) days of the Effective Date, the Parties shall
mutually agree upon a set of monthly reports to be issued by
WinStar to Williams. WinStar will provide Williams with suggested
formats for such reports for Williams' review and approval. As
one such report, WinStar will provide a monthly performance
report that describes WinStar's deployment of the Hubs,
availability of the applicable Minimum Williams T-1 Inventory and
a forecast of upcoming WinStar Target Market implementations
(including Hubs, buildings and addresses).
(b) Within thirty (30) days of the Effective Date, the Parties shall
mutually agree upon a set of regular management meetings. WinStar
will prepare and circulate an agenda sufficiently in advance of
each such meeting to give participants an opportunity to prepare
for the meeting and will incorporate into such agenda any items
that Williams desires to discuss. At Williams' request, WinStar
will prepare and circulate minutes promptly after a meeting.
5.2. Confidentiality.
(a) Confidential Information. Williams and WinStar each acknowledge
that they may be furnished with, receive or otherwise have access
to information of or concerning the other Party that such Party
considers to be confidential, proprietary, a trade secret or
otherwise restricted. As used in this Agreement and subject to
Section (c), "Confidential Information" means all information, in
any form, furnished or made available directly or indirectly by
one Party (the "Disclosing Party") to the other (the "Receiving
Party") that (i) concerns the operations, facilities, plans,
affairs and businesses of the Disclosing Party, the financial
affairs of the Disclosing Party, and the relations of the
Disclosing Party with its customers, employees and service
providers, or (ii) is marked confidential, restricted,
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proprietary, or with a similar designation. The terms and
conditions of this Agreement shall be deemed Confidential
Information, but may be disclosed pursuant to this Section 5.2 or
Section 12.15.
(b) Obligations.
(i) Each Party's Confidential Information shall remain the
property of that Party except as expressly provided
otherwise by the other provisions of this Agreement. Each
Party shall each use at least the same degree of care, but
in any event no less than a reasonable degree of care, to
prevent unauthorized disclosure of Confidential Information
as it employs to avoid unauthorized disclosure of its own
information of a similar nature. Except as otherwise
permitted hereunder, the Parties may disclose such
information (A) to their respective directors, officers,
managers, employees, agents, contractors and consultants
(collectively, "Representatives"), (B) to entities
performing services required hereunder only where: (1) use
of such entity is authorized under this Agreement, (2) such
disclosure is necessary or otherwise naturally occurs in
that entity's scope of responsibility, (3) the entity agrees
in writing to assume the obligations described in this
Subsection (b). Any disclosure to such entity shall be under
substantially the same confidentiality terms and conditions
set forth herein.
(ii) Each Party shall take reasonable steps to ensure that its
(and its Affiliates') Representatives comply with this
Subsection (b). In the event of any disclosure or loss of,
or inability to account for, any Confidential Information of
the Disclosing Party, the Receiving Party shall promptly, at
its own expense: (A) notify the Disclosing Party in writing;
and (B) take such actions as may be necessary and cooperate
in all reasonable respects with the Disclosing Party to
minimize the violation and any damage resulting therefrom.
(iii)Either Party may disclose the terms and conditions of this
Agreement to any third party that (A) has expressed a bona
fide interest in consummating a significant financing,
merger or acquisition or other corporate transaction between
such third party and such Party, (B) has a reasonable
ability (financial and otherwise) to consummate such
transaction, and (C) has executed a nondisclosure agreement
that includes within its scope the terms and conditions of
this Agreement and also includes a procedure to limit the
extent of copying and distribution thereof. Each Party shall
endeavor to delay the disclosure of the terms and conditions
of this Agreement until the status of discussions concerning
such transaction warrants such disclosure. In addition,
either party (or either party's Affiliates) may disclose the
terms and conditions of this Agreement as such party deems
appropriate to prepare for IPOs or major corporate
transactions. Any disclosure to such entity shall be
substantially under the same confidentiality terms and
conditions as provided herein.
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(c) Exclusions. "Confidential Information" shall exclude any
particular information that the Receiving Party can demonstrate:
(i) At the time of disclosure, was in the public domain or in
the rightful possession of the Receiving Party;
(ii) After disclosure, is published or otherwise becomes part of
the public domain through no fault of the Receiving Party;
(iii)Was received after disclosure from a third party who had a
lawful right to disclose such information to the Receiving
Party without any obligation to restrict its further use or
disclosure;
(iv) Was independently developed by the Receiving Party without
reference to Confidential Information of the Disclosing
Party; or
(v) Was required to be disclosed to satisfy a legal requirement
of a competent government body; provided that, immediately
upon receiving such request and to the extent that it may
legally do so, the Receiving Party advises the Disclosing
Party promptly and prior to making such disclosure in order
that the Disclosing Party may interpose an objection to such
disclosure, take action to assure confidential handling of
the Confidential Information, or take such other action as
it deems appropriate to protect the Confidential
Information.
(d) No Implied Rights. Nothing contained in this Section shall be
construed as obligating a Party to disclose its Confidential
Information to the other Party, or as granting to or conferring
on a Party, expressly or impliedly, any rights or license to the
Confidential Information of the other Party.
6. CHARGES
6.1. General.
The charging mechanisms and pricing methodologies for Wireless Fiber
Connectivity and maintenance and collocation services are set forth in
Schedule C.
6.2. Taxes.
The Parties' respective responsibilities for taxes arising under or in
connection with this Agreement shall be as follows:
(a) Each Party shall be responsible for personal property taxes on
property it owns or leases, for franchise and privilege taxes on
its business, and for taxes based on its net income or gross
receipts; provided, however, that Williams shall be responsible
for its proportionate share (based upon the proportion of the Hub
or building capacity used for Williams T-1) of any property taxes
(or similar levies) assessed as a result of the implementation of
any Williams T-1.
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(b) Williams shall timely report and pay any and all sales, use,
income, gross receipts, excise, transfer, ad valorem or other
taxes, and any and all franchise fees or similar fees assessed
against it due to the Williams IRU or its use of the Williams
T-1s.
(c) If a sales, use, excise, value-added, services, consumption, or
other tax is assessed on the provision of the Wireless Fiber
Connectivity, Maintenance or any other services, the Parties
shall work together to segregate the payments under this
Agreement into three (3) payment streams:
(i) Payments for taxable items;
(ii) Payments where Williams functions merely as a payment agent
for WinStar; and
(iii) Payments for other nontaxable items.
(d) The Parties agree to cooperate with each other to enable each to
determine more accurately its own tax liability and to minimize
such liability to the extent legally permissible. Each invoice
shall separately state the amounts of any taxes collected. Each
Party shall provide and make available to the other any resale
certificates and other exemption certificates or information
reasonably requested by either Party that is applicable to the
subject matter of this Agreement.
(e) Each Party shall promptly notify the other of, and coordinate the
response to and settlement of, any claim for taxes asserted by
applicable taxing authorities for which the other Party is
responsible hereunder. With respect to any claim arising out of a
form or return signed by a Party to this Agreement, such Party
shall have the right to elect to control the response to and
settlement of the claim, but the other Party shall have all
rights to participate in the responses and settlements that are
appropriate to its potential responsibilities or liabilities.
6.3. Pass-Through Expenses.
For each Pass-Through Expense, if any, WinStar shall review the
invoiced charges and determine whether such charges are proper and
valid. Unless the Parties mutually agree otherwise, Pass-Through
Expenses will be paid directly by Williams.
6.4. Most Favored Customer Status.
(a) Williams T-1s. With regard to the Williams Connectivity, Williams
shall have most favored customer protection as follows:
(i) During the twenty-four (24) months following the Effective Date,
if WinStar enters into an agreement with another party to provide
Wireless Fiber Connectivity and the overall pricing ("Financial
Terms") of such services is not Comparable (as hereinafter
defined) to that provided to Williams pursuant to this Agreement
with regard to the Williams Connectivity, WinStar shall promptly
notify Williams in writing of such more favorable Financial
Terms. WinStar shall be under no obligation to disclose to
Williams the identity of any such third party or any other
provisions of such a contract that are not more favorable than
those provided to Williams. As used in this Section, "Comparable"
means not less than one-half the price, after adjustments to take
into account all differences attributable to volume, terms and
conditions, advances in technology, passage of time, market
conditions or strategic relationship value.
(ii) If WinStar sells Wireless Fiber Connectivity to a third party on
Financial Terms that are not Comparable to those provided
hereunder, Williams shall be entitled to an adjustment of the
amounts paid with regard to the Williams Connectivity. Such
adjustment shall be equal to twice the aggregate amount
necessary to make the Financial Terms Comparable and shall be
credited in such amounts as correspond to the timing of Williams'
payment obligations hereunder. Upon payment or credit of such
adjustment to Williams, the Financial Terms of this Agreement
shall be deemed to be those more favorable Financial Terms for
the purpose of future applications of this Section. Nothing in
this Section 6.4 shall be deemed to require WinStar to sell more
Wireless Fiber Connectivity than the Williams Connectivity.
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(b) Excess Connectivity. With regard to Wireless Fiber Connectivity
in excess of the Williams Connectivity or Williams T-1 Ceiling,
as appropriate ("Excess Connectivity"), Williams shall have most
favored customer protection as follows:
(i) During the Term, if WinStar enters into an agreement with
another part to provide Wireless Fiber Connectivity and the
Financial Terms of such services are not Comparable (as
hereinafter defined) to that provided to Williams for Excess
Connectivity pursuant to this Agreement, WinStar shall
promptly notify Williams in writing of such more favorable
Financial Terms. WinStar shall be under no obligation to
disclose to Williams the identity of any such third party or
any other provisions of such a contract that are not more
favorable than those provided to Williams. As used in this
Section, "Comparable" means an equivalent price, after
adjustments to take into account all differences
attributable to volume, terms and conditions, advances in
technology, passage of time, market conditions or strategic
relationship value.
(ii) If WinStar sells Wireless Fiber Connectivity to a third
party on Financial Terms that are not Comparable to those
provided hereunder with regard to Excess Connectivity,
Williams shall be entitled to an adjustment. Such adjustment
shall be equal to the amount necessary to make the Financial
Terms Comparable and shall be credited in such amounts as
correspond to the timing of Williams' payment obligations
hereunder. Upon payment or credit of such adjustment to
Williams, the Financial Terms of this Agreement shall be
deemed to be those more favorable Financial Terms for the
purpose of future applications of this Section.
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6.5. Benchmarking.
(a) Wireless Fiber Connectivity offered by WinStar in excess of the
Williams Connectivity, if any, shall be of equivalent or better
quality, availability and price when compared to similar
offerings in the marketplace. However, nothing in this Section
6.5 shall be deemed to require WinStar to sell more Wireless
Fiber Connectivity than the Williams Connectivity.
(b) Within 180 days after the Effective Date, the Parties will
jointly establish a benchmarking measurement and comparison
process (the "Benchmarking Process") designed to objectively
evaluate whether the Wireless Fiber Connectivity purchased by
Williams in excess of the Williams Connectivity is of equivalent
or better quality, availability and price as compared to similar
services generally available in the market for similar size and
scope requirements ("Market Level Charges"). The Benchmarking
Process will take into consideration relevant factors such as
quality and delivery terms.
7. INVOICING AND PAYMENT
7.1. Invoicing.
WinStar shall invoice Williams for all amounts due under this
Agreement prior to the payment dates set forth in Schedule C and on a
monthly basis in arrears for all other charges. Each invoice shall
show such details as reasonably requested by Williams, separately
state the amounts of any taxes collected and include the calculations
utilized to establish the charges.
7.2. Payment Due.
(a) Subject to the other provisions of this Article 7, invoices
provided for under Section 7.1 and properly submitted to Williams
pursuant to this Agreement shall be due and payable by Williams
within thirty (30) days after receipt thereof. Any amount due
under this Agreement for which a time for payment is not
otherwise specified shall be due and payable within thirty (30)
days after receipt of a proper invoice for such amount.
(b) To the extent a credit may be due Williams pursuant to this
Agreement, WinStar shall provide Williams with an appropriate
credit against amounts then due and owing; if no further payments
are due to WinStar, WinStar shall pay such amounts to Williams
within thirty (30) days.
(c) Williams shall make payments provided for under this Article 7 or
Schedule C by wire transfer of immediately available funds to the
account or accounts designated by WinStar. All other payments to
be made pursuant to this Agreement may be made by check or draft
of immediately available funds delivered to the address
designated in writing by the other Party (e.g., in a statement or
invoice) or, failing such designation, to the address for notice
to such other Party provided pursuant to Section 12.8.
(d) The first invoice provided under this Agreement shall be due and
payable within sixty (60) days of the Effective Date.
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7.3. Disputed Charges.
Williams shall pay undisputed charges when such payments are due under
this Agreement. Williams may withhold payment of particular charges
that Williams disputes in good faith and for which it promptly gives
written notice to WinStar, stating the details of such dispute. The
Parties shall promptly refer such matter to dispute resolution in
accordance with Section 11.2. If Williams withholds any disputed
charges and such charges are ultimately determined to be proper and
payable to WinStar, Williams shall pay such charges to WinStar plus
interest at the Prime Rate from the date such charges were originally
due until the date such charges are paid. WinStar agrees that no
payment dispute shall be grounds for WinStar to withhold or diminish
the quality or quantity of any of the connectivity and services
provided hereunder.
7.4. Late Interest.
If either Williams or WinStar fails to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date
such payment is due until paid, including accrued interest, at the
Prime Rate.
8. COVENANTS, REPRESENTATIONS AND WARRANTIES
8.1. Non-Infringement.
Each Party represents, warrants and covenants to the other that it
shall perform its responsibilities under this Agreement in a manner
that does not infringe, or constitute an infringement or
misappropriation of, any Intellectual Property Rights of any third
party.
8.2. Authorization.
Each Party represents and warrants to the other that:
(a) It has the requisite corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated by
this Agreement;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the requisite corporate action on
the part of such Party;
(c) This Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms;
(d) Its execution of and performance under this Agreement shall not
violate any applicable existing regulations, rules, statutes, or
court orders of any local, state, or federal government agency,
court, or body;
(e) It is not subject to any contractual or other obligation that
would prevent it from entering into this relationship; and
(f) It has not offered or provided any inducements in violation of
law or the other Party's policies of which it has been given
notice, in connection with this Agreement.
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8.3. Wireless Fiber Connectivity.
Excluding services provided by third parties other than WinStar's
subcontractors, WinStar covenants that the Williams T-1s shall be
designed, engineered, installed, constructed and operated in
accordance with the specifications set forth in the applicable
services schedule. WinStar further covenants that it will use its
commercially reasonable efforts under the circumstances to remedy any
delays, interruptions, omissions, mistakes, accidents or errors in the
Williams T-1s provided hereunder and to restore such Williams T-1s to
compliance with the terms hereof.
8.4. Disclaimer.
EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES MAKE
NO WARRANTY TO EACH OTHER OR ANY OTHER ENTITY, WHETHER EXPRESS,
IMPLIED OR STATUTORY, AS TO THE MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OF ANY WIRELESS FIBER CONNECTIVITY, WILLIAMS T-1s,
HUBS, ANCILLARY SERVICES OR ANY OTHER SERVICES PROVIDED HEREUNDER OR
DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES
ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
9. INDEMNIFICATION
9.1. Indemnities by Williams.
Williams agrees to indemnify, defend and hold harmless WinStar and its
Affiliates and their respective officers, directors, employees,
agents, successors, and assigns, from any and all Losses and
threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) Williams' failure to observe or perform its duties or obligations
to third parties (e.g., duties or obligations to subcontractors);
(b) Williams' infringement or misappropriation of any Intellectual
Property Rights of any third party;
(c) Williams' unexcused failure to abide by the terms and conditions
of the business relationship as mutually agreed to by the Parties
in writing;
(d) The death or bodily injury of any agent, employee, customer,
business invitee or any other person to the extent caused by the
tortious conduct of Williams;
(e) The damage, loss or destruction of any real or tangible personal
property to the extent caused by the tortious conduct of
Williams;
(f) Fines, penalties or other amounts payable due to Williams'
violation of applicable laws or regulations; and
(g) Any claim, demand, charge, action, cause of action, or other
proceeding asserted against WinStar but resulting from an act or
omission of Williams in its capacity as an employer of a person.
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9.2. Indemnities by WinStar.
WinStar agrees to indemnify, defend and hold harmless Williams and its
Affiliates and their respective officers, directors, employees,
agents, successors, and assigns, from any and all Losses and
threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) WinStar's failure to observe or perform its duties or obligations
to third parties (e.g., duties or obligations to its customers);
(b) WinStar's infringement or misappropriation of Intellectual
Property Rights of any third party;
(c) WinStar's unexcused failure to abide by the terms and conditions
of the business relationship as mutually agreed to by the Parties
in writing;
(d) The death or bodily injury of any agent, employee, customer,
business invitee or any other person to the extent caused by the
tortious conduct of WinStar;
(e) The damage, loss or destruction of any real or tangible personal
property to the extent caused by the tortious conduct of WinStar;
(f) Fines, penalties or other amounts payable due to WinStar's
violation of applicable laws or regulation; and
(g) Any claim, demand, charge, action, cause of action, or other
proceeding asserted against Williams but resulting from an act or
omission of WinStar in its capacity as an employer of a person.
9.3. Indemnification Procedures.
With respect to third-party claims, the following procedures shall
apply:
(a) Promptly after receipt of notice of the commencement or
threatened commencement of any civil, criminal, administrative,
or investigative action or proceeding involving a claim in
respect of which the indemnitee will seek indemnification
pursuant to this Article 9, the indemnitee will notify the
indemnitor of such claim in writing. No failure to so notify the
indemnitor will relieve the indemnitor of its obligations under
this Agreement except to the extent that it can demonstrate
damages attributable to such failure. Within fifteen (15)
calendar days following receipt of written notice from the
indemnitee relating to any claim, but no later than ten (10)
calendar days before the date on which any response to a
complaint or summons is due, the indemnitor will notify the
indemnitee in writing if the indemnitor elects to assume control
of the defense and settlement of that claim (a "Notice of
Election").
(b) If the indemnitor delivers a Notice of Election relating to any
claim within the required notice period, the indemnitor shall be
entitled to have sole control over the defense and settlement of
such claim; provided that (i) the indemnitee shall be entitled to
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participate in the defense of such claim and to employ counsel at
its own expense to assist in the handling of such claim, and (ii)
the indemnitor shall obtain the prior written approval, not to be
unreasonably withheld or delayed, of the indemnitee before
entering into any settlement of such claim or ceasing to defend
against such claim. After the indemnitor has delivered a Notice
of Election relating to any claim in accordance with the
preceding paragraph, the indemnitor shall not be liable to the
indemnitee for any legal expenses incurred by the indemnitee in
connection with the defense of that claim. In addition, the
indemnitor shall not be required to indemnify the indemnitee for
any amount paid or payable by the indemnitee in the settlement of
any claim for which the indemnitor has delivered a timely Notice
of Election if such amount was agreed to without the written
consent of the indemnitor.
(c) If the indemnitor does not deliver a Notice of Election relating
to any claim within the required notice period, or ceases to
defend against the claim, the indemnitee shall have the right to
defend the claim in such manner as it may deem appropriate, at
the cost and expense of the indemnitor. The indemnitor shall
promptly reimburse the indemnitee for all such costs and
expenses.
10. LIABILITY, RISK OF LOSS AND INSURANCE
10.1. General Intent.
Subject to the specific provisions of this Article 10, it is the
intent of the Parties that each Party shall be liable to the other
Party for any actual damages incurred by the non-breaching Party as a
result of the breaching Party's failure to perform its obligations in
the manner required by this Agreement.
10.2. Liability Restrictions.
(a) IN NO EVENT, WHETHER IN CONTRACT OR IN TORT (INCLUDING BREACH OF
WARRANTY, NEGLIGENCE AND STRICT LIABILITY IN TORT), SHALL A PARTY
BE LIABLE FOR INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR
SPECIAL DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) Subject to Subsection (c), below, each Party's total liability to
the other, whether in contract or in tort (including breach of
warranty, negligence and strict liability in tort) shall be
limited to two hundred million dollars ($200,000,000).
(c) The limitation set forth in Subsections (b), above, shall not
apply with respect to: (i) third-party claims subject to
indemnification pursuant to the Agreement; (ii) fees due and
owing under this Agreement at the time of the claim; and (iii)
amounts subject of Cover as provided in Section 3.7(b).
(d) For the purposes of this Section 10.2, all amounts payable or
paid to third parties in connection with claims that are eligible
for indemnification pursuant to this Agreement shall be deemed
direct damages.
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10.3. Insurance Requirements.
(a) During the Term, WinStar shall have and maintain in force the
following insurance coverages:
(i) Worker's Compensation and Employer's Liability. Worker's
Compensation Insurance in amounts required by applicable law
and Employers Liability Insurance with limits not less than
$1,000,000 each accident. If work is to be performed in
Nevada, North Dakota, Ohio, Washington, Wyoming or West
Virginia, the party shall participate in the appropriate
state fund(s) to cover all eligible employees and provide a
stop gap endorsement for these monopolistic states in
WinStar's Worker's Compensation Insurance Program.
(ii) Commercial General Liability. WinStar shall carry broadform
general liability insurance coverage for property damage,
bodily injury, personal injury, contractual liability and
accidental pollution legal liability with coverage of at
least $10,000,000 per occurrence and in the aggregate. Total
limits can be attained by the inclusion of an
Umbrella/Excess Liability policy.
(iii)Automobile Liability. WinStar shall carry automobile
liability insurance written on the occurrence form of
policy. The policy shall provide for bodily injury and
property damage liability covering the operation of all
automobiles used in connection with performing under the
Agreement and shall provide coverage of at least $2,000,000
per occurrence.
(b) WinStar shall cause its insurers to issue certificates of
insurance evidencing that the coverages required under this
Agreement are maintained in force. The minimum limits of coverage
specified herein are not intended, and shall not be construed, to
limit any liability or indemnity of WinStar under this Agreement.
(c) Nothing in this Agreement shall be construed to prevent WinStar
from satisfying its insurance obligations pursuant to this
Agreement under a blanket policy or policies of insurance that
meet or exceed the requirements of this Article.
10.4. Risk of Loss.
(a) Each Party shall promptly notify the other of any matters
pertaining to any damage or impending damage to or loss of
Wireless Fiber Connectivity known to it that could reasonably be
expected to adversely affect the Wireless Fiber Connectivity.
(b) Each Party shall take all reasonable precautions against, and
shall assume liability for, subject to the terms of this
Agreement, any damage caused by it to the property of the other
Party.
(c) Neither Party shall use, or allow others to use, equipment,
technologies, or methods of operation that interfere in any way
with or adversely affect the Williams Connectivity or the
permitted use thereof by Williams, WinStar or authorized third
parties.
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(d) Williams shall not cause or permit any part of the Williams T-1s
to become subject to any mechanic's lien, materialman's lien,
vendor's lien or any similar lien or encumbrance whether by
operation of law or otherwise.
10.5. Force Majeure.
(a) No Party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to the
extent such default or delay is caused, directly or indirectly,
by fire, flood, lightning, earthquake, elements of nature or acts
of God, riots, civil disorders, rebellions or revolutions in any
country or any other cause beyond the reasonable control of such
Party; provided, however, that (i) the non-performing Party is
without fault in causing such default or delay, and (ii) such
default or delay could not have been prevented by reasonable
precautions and cannot reasonably be circumvented by the
non-performing Party through the use of alternate sources,
workaround plans or other means, including means contemplated by
applicable disaster recovery processes or procedures).
(b) In such event the non-performing Party shall be excused from
further performance or observance of the obligation(s) so
affected for as long as such circumstances prevail and such Party
continues to use commercially reasonable efforts to recommence
performance or observance whenever and to whatever extent
possible without delay. Any Party so delayed in its performance
shall immediately notify the other Party by telephone (to be
confirmed in writing within two (2) business days of the
inception of such delay) and describe at a reasonable level of
detail the circumstances causing such delay. The non-performing
party will provide the other party prompt written notice of the
cessation or termination of the force majeure event.
11. REMEDIES AND DISPUTE RESOLUTION
Any dispute between the Parties arising out of or relating to this
Agreement, including with respect to the interpretation of any provision of
this Agreement and with respect to the performance by Williams or WinStar,
shall be resolved as provided in this Article 11.
11.1. Cumulative Nature.
Except as otherwise expressly provided herein, all remedies provided
for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to either Party at law, in
equity or otherwise.
11.2. Informal Dispute Resolution.
(a) Prior to the initiation of formal dispute resolution procedures
(i.e., arbitration), the Parties shall first attempt to resolve
their dispute at the senior manager level. If that level of
dispute resolution is not successful, the Parties shall proceed
informally, as follows:
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(i) Upon the written request of either Party, each Party shall
appoint a designated representative who does not otherwise
devote substantially full time to performance under this
Agreement, whose task it will be to meet for the purpose of
endeavoring to resolve such dispute.
(ii) The designated representatives shall meet as often as the
Parties reasonably deem necessary in order to gather and
furnish to the other all information with respect to the
matter in issue that the Parties believe to be appropriate
and germane in connection with its resolution. The
representatives shall discuss the problem and attempt to
resolve the dispute without the necessity of any formal
proceeding.
(iii)During the course of discussion, all reasonable requests
made by one Party to another for non-privileged
non-confidential information reasonably related to this
Agreement shall be honored so that each of the Parties may
be fully advised of the other's position.
(iv) The specific format for the discussions shall be left to the
discretion of the designated representatives.
(b) Prior to instituting formal proceedings, the Parties will first
have their chief executive officers meet to discuss the dispute.
This requirement shall not delay the institution of formal
proceedings past any statute of limitations expiration or for
more than fifteen (15) days.
(c) Subject to Subsection (b), formal proceedings for the resolution
of a dispute may not be commenced until the earlier of:
(i) The designated representatives concluding in good faith that
amicable resolution through continued negotiation of the
matter does not appear likely; or
(ii) Thirty (30) days after the initial written request to
appoint a designated representative pursuant to Subsection
(a), above, (this period shall be deemed to run
notwithstanding any claim that the process described in this
Section 11.2 was not followed or completed).
(d) This Section 11.2 shall not be construed to prevent a Party from
instituting, and a Party is authorized to institute, formal
proceedings earlier to avoid the expiration of any applicable
limitations period, or to preserve a superior position with
respect to other creditors or as provided in Section 11.6(a).
11.3. Arbitration.
If the Parties are unable to resolve a dispute as contemplated by
Section 11.2, and that dispute is not subject to 11.6(a) of this
Agreement, then such dispute shall be submitted to mandatory and
binding arbitration at the election of either Party (the "Disputing
Party") pursuant to the following conditions:
(a) Selection of Arbitrator. The Disputing Party shall notify the
American Arbitration Association ("AAA") and the other Party,
describing in reasonable detail the nature of the dispute, (the
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"Dispute Notice") and shall request that the AAA furnish a list
of five (5) possible arbitrators who have substantial experience
in the telecommunications industry. Each Party shall have fifteen
(15) days to reject two (2) of the proposed arbitrators. If only
one individual has not been so rejected, that person shall serve
as arbitrator; if two (2) or more individuals have not been so
rejected, the AAA shall select the arbitrator from those
individuals.
(b) Conduct of Arbitration. The arbitrator shall allow reasonable
discovery in the forms permitted by the Federal Rules of Civil
Procedure, to the extent consistent with the purpose of the
arbitration. The arbitrator shall have no power or authority to
amend or disregard any provision of this Section 11.3 or any
other provision of this Agreement. In particular, the arbitrator
shall not have the authority to exclude the right of a Party to
terminate this Agreement when a Party would otherwise have such
right. The arbitration hearing shall be commenced promptly and
conducted expeditiously.
(c) Replacement of Arbitrator. Should the arbitrator refuse or be
unable to proceed with arbitration proceedings as called for by
this Section, such arbitrator shall be replaced and a rehearing
shall take place in accordance with the provisions of this
Section. In such case, the replacement for the arbitrator shall
be either selected by the AAA from the original group of
potential arbitrators that were not rejected by the Parties or,
if there are no such arbitrators available, selected by repeating
the process of selection described in Subsection (a), above.
(d) Findings and Conclusions. The arbitrator rendering judgment upon
disputes between Parties as provided in this Section shall, after
reaching judgment and award, prepare and distribute to the
Parties a writing describing the findings of fact and conclusions
of law relevant to such judgment and award. The award of the
arbitrator shall be final and binding on the Parties, and
judgment thereon may be entered in a court of competent
jurisdiction.
(e) Place of Arbitration Hearings. Arbitration hearings hereunder
shall be held in Chicago, Illinois. If the Parties mutually
agree, arbitration hearings may be held in another location.
(f) Time of the Essence. The arbitrator is instructed that time is of
the essence in the arbitration proceeding, and that the
arbitrator shall have the right and authority to issue monetary
sanctions against either of the Parties if, upon a showing of
good cause, that Party is unreasonably delaying the proceeding.
Recognizing the express desire of the Parties for an expeditious
means of dispute resolution, the arbitrator shall limit or allow
the Parties to expand the scope of discovery as may be reasonable
under the circumstances.
11.4. Termination.
A Party shall not be in material breach of this Agreement unless and
until the other Party provides it written notice of default and the
non-performing party has failed to cure within thirty (30) days after
receipt of such notice. Any event of default may be waived in writing
at the non-defaulting Party's option. Upon the failure of a Party to
timely cure its material breach hereunder within the applicable cure
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period, the non-defaulting Party shall have the right to (i) terminate
this Agreement or (ii) subject to the terms of this Article 11, pursue
any legal remedies it may have under applicable law or principles of
equity relating to such breach.
11.5. Suspension of Service.
If Williams does not make any undisputed payment of at least One
Hundred Thousand Dollars ($100,000) within thirty days of the payment
due date, WinStar may suspend service to all Williams T-1s upon five
(5) days' prior written notice if Williams does not cure within such
period. If such non-payment continues for more than thirty (30) days
after receipt of such notice, WinStar shall have the right to
terminate this Agreement.
11.6. Litigation.
(a) Immediate Injunctive Relief. The only circumstance in which
disputes between the Parties shall not be subject to the
provisions of Sections 11.2 and 11.3 is where a Party, in good
faith, determines that a temporary restraining order or other
injunctive relief is its only appropriate and adequate remedy. If
a Party seeks immediate injunctive relief and does not prevail in
substantial part, that Party shall pay the other Party's costs
and attorneys' fees to the extent incurred in responding to or
challenging the request for immediate injunctive relief.
(b) Jurisdiction. The Parties consent to the jurisdiction of the
courts of the State of New York and to jurisdiction and venue in
the United States District Court for the Southern District of New
York for all litigation that may be brought with respect to the
terms of, and the transactions and relationships contemplated by,
this Agreement. The Parties further consent to the jurisdiction
of any state court located within a district that encompasses
assets of a Party against which a judgment has been rendered for
the enforcement of such judgment or award against the assets of
such Party.
(c) Governing Law. This Agreement and performance under it shall be
governed by and construed in accordance with the laws of the
State of New York without regard to its choice of law principles.
11.7. Continued Performance.
Each Party agrees to continue performing its obligations under this
Agreement while any dispute is being resolved except to the extent the
issue in dispute precludes performance (dispute over payment shall not
be deemed to preclude performance except as provided in Section 11.5).
12. GENERAL
12.1. Binding Nature and Assignment.
(a) This Agreement shall accrue to the benefit of and be binding upon
the Parties hereto and any purchaser or any successor entity into
which either Party has been merged or consolidated or to which
either Party has sold or transferred all or substantially all of
its assets.
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(b) Neither Party may, or shall have the power to, assign this
Agreement or delegate such Party's obligations hereunder without
the prior written consent of the other, except to:
(i) An entity that acquires all or substantially all of the
assets of such Party,
(ii) Any Affiliate,
(iii) A successor in a merger or acquisition of either Party, or
(iv) In connection with any financing.
12.2. Entire Agreement.
This Agreement, including any attached Schedules, constitutes the
entire agreement between the Parties with respect to the subject
matter in this Agreement, and supersedes all prior agreements, whether
written or oral, with respect to the subject matter contained in this
Agreement.
12.3. Tariff.
WinStar acknowledges that this is a private non-common carrier
agreement and that any incorporation of WinStar tariff provisions is
done for the convenience of the Parties.
12.4. Consents.
As between the parties, Williams shall be responsible for all
arrangements with copyright holders, music licensing organizations,
performers' representatives or other parties for necessary
authorizations, clearances or consents with respect to transmission
contents.
12.5. Restriction of Transmissions.
Williams will not transmit content that violates applicable law or
carries an unreasonable risk of leading to criminal, civil or
administrative proceedings or investigations against Williams or
WinStar.
12.6. Use and Ownership.
Neither Party shall have any right, title or interest to the equipment
installed by the other Party.
12.7. Non-Solicitation.
Neither Party shall directly or indirectly solicit the other's
employees or contractors without the other Party's written consent,
which shall not be unreasonably withheld.
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12.8. Notices.
All notices, requests, demands, and determinations under this
Agreement (other than routine operational communications), shall be in
writing and shall be deemed duly given (i) when delivered by hand,
(ii) one (1) business day after being given to an express, overnight
courier with a system for tracking delivery, (iii) when sent by
confirmed facsimile with a copy delivered thereafter by another means
specified in this Section, or (iv) four (4) business days after the
day of mailing, when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, and addressed as
follows:
If to WinStar: If to Williams:
WinStar Wireless, Inc. Williams Communications, Inc.
230 Park Avenue One Williams Center, Suite 26-5
New York, NY 10169 Tulsa, Oklahoma 74172
Attn: EVP, General Counsel Attn: Contract Administration
Facsimile: 212/922-1637 Facsimile: 918/573-6578
With a copy to: With a copy to:
WinStar Wireless, Inc. Williams Communications, Inc.
7799 Leesburg Pike One Williams Center, Suite 4100
Falls Church, Virginia 22043 Tulsa, Oklahoma 74172
Attn: VP, Commercial and Attn: General Counsel
Legal Operations
Facsimile: 703/288-6647 Facsimile: 918/573-3005
A Party may from time to time change its address or designee for
notification purposes by giving the other prior written notice of the
new address or designee and the date upon which it will become
effective.
12.9. Counterparts.
This Agreement may be executed in several counterparts, all of which
taken together shall constitute one single agreement between the
Parties hereto.
12.10. Relationship of Parties.
Each Party, in performing hereunder, is acting as an independent
contractor, and such Party's personnel (including its subcontractors)
shall not be considered or represented as employees or agents of the
other Party. Neither Party is an agent of the other and has no
authority to represent that Party as to any matters, except as
expressly authorized in this Agreement.
12.11. Severability.
If any provision of this Agreement conflicts with the law under which
this Agreement is to be construed or if any such provision is held
invalid by an arbitrator or a court with jurisdiction over the
Parties, such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the Parties in
accordance with applicable law. The remainder of this Agreement shall
remain in full force and effect.
29
<PAGE> 33
12.12. Reasonableness, Consents and Approval.
(a) Where this Agreement requires a Party to assist or
cooperate, such requirement shall not be interpreted to
require materially more than a commercially reasonable level
of effort (i.e. the standard applicable will not be "best
efforts" or "exhausting all available means").
(b) Except where expressly provided as being in the sole
discretion of a Party, where agreement, approval,
acceptance, consent, or similar action by either Party is
required under this Agreement, such action shall not be
unreasonably delayed or withheld. An approval or consent
given by a Party under this Agreement shall not relieve the
other Party from responsibility for complying with the
requirements of this Agreement, nor shall it be construed as
a waiver of any rights under this Agreement, except as and
to the extent otherwise expressly provided in such approval
or consent.
12.13. Waiver of Default.
No waiver or discharge hereof shall be valid unless in writing and
signed by an authorized representative of the Party against which such
amendment, waiver, or discharge is sought to be enforced. A delay or
omission by either Party hereto to exercise any right or power under
this Agreement shall not be construed to be a waiver thereof. A waiver
by either of the Parties hereto of any of the covenants to be
performed by the other or any breach thereof shall not be construed to
be a waiver of any succeeding breach thereof or of any other covenant
herein contained.
12.14. Survival.
No termination of this Agreement shall affect the rights or
obligations of any Party with respect to any other provisions of this
Agreement that contemplate performance or observance subsequent to any
termination or expiration of this Agreement.
12.15. Public Disclosures.
All media releases, public announcements, and public disclosures
relating to this Agreement or the subject matter of this Agreement,
including promotional or marketing material, but not including
announcements intended solely for internal distribution or disclosures
to the extent required to meet legal or regulatory requirements, shall
be coordinated with and shall be subject to approval by both Parties
prior to release.
12.16. Third Party Beneficiaries.
Except as otherwise provided in this Agreement, this Agreement shall
not be deemed to create any rights in third parties, including
suppliers and customers of a Party, or to create any obligations of a
Party to any such third parties.
12.17. Amendment.
(a) This Agreement shall not be modified, amended or in any way
altered except by an instrument in writing signed by both
Parties.
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<PAGE> 34
(b) Unless otherwise expressly permitted in this Agreement, WinStar
shall not make any changes to the Exhibits or Schedules attached
hereto that may have a material adverse impact on the performance
or usability of Williams Connectivity without Williams' prior
written consent.
12.18. Order of Precedence.
In the event of a conflict, this Agreement shall take precedence over
the Schedules attached hereto, and the Schedules shall take precedence
over their attached Exhibits.
This order of precedence may be modified in a subsequently-added
Schedule or Exhibit if this modification is explicitly noted in the
corresponding amendment instrument.
12.19. Interpretation.
(a) Terms other than those defined in this Agreement shall be given
their plain English meaning, and those terms, acronyms and
phrases known in the telecommunications and information
technology services industries shall be interpreted in accordance
with their generally known meanings. Unless the context otherwise
requires, words importing the singular include the plural and
vice-versa.
(b) References to "Article," "Section," "Subsection" and "Schedule"
mean references to an article, section, subsection or schedule of
this Agreement, as appropriate, unless otherwise specifically
stated.
(c) The article and section headings in this Agreement are intended
to be for reference purposes only and shall in no way be
construed to modify or restrict any of the terms or provisions of
this Agreement.
(d) The words "include," "includes" and "including," when following a
general statement or term, are not to be construed as limiting
the general statement or term to any specific item or matter set
forth or to similar items or matters, but rather as permitting
the general statement or term to refer also to all other items or
matters that could reasonably fall within its broadest scope.
12.20. Covenant of Good Faith.
Each Party agrees that, in its respective dealings with the other
Party under or in connection with this Agreement, it will act in good
faith.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
undersigned officers, thereunto duly authorized, as of the date first written
above.
<TABLE>
<S> <C>
WINSTAR WIRELESS, INC. WILLIAMS COMMUNICATIONS, INC.
/s/ Timothy R. Graham /s/ Frank Semple
By: -------------------------------------------- By: ----------------------------------------
Timothy R. Graham Frank Semple
Name: -------------------------------------------- Name: ----------------------------------------
Vice President President, Williams Network
Title -------------------------------------------- Title: ----------------------------------------
December 17, 1998 December 17, 1998
Date: -------------------------------------------- Date: ----------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.19
UTILICOM NETWORKS, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
DATED DECEMBER 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
1. Authorization and Sale of Securities.................................1
1.1 Authorization...............................................1
1.2 Purchase and Sale of Securities.............................2
1.3 Use of Proceeds.............................................2
1.4 Director....................................................2
2. Closing..............................................................2
2.1 Closing.....................................................2
2.2 Investment..................................................3
3. Representations and Warranties of the Company........................3
3.1 Organization and Standing...................................3
3.2 Capitalization..............................................3
3.3 Subsidiaries, Etc...........................................4
3.4 Stockholder List and Agreements.............................4
3.5 Issuance of Securities......................................4
3.6 Authority for Agreement.....................................4
3.7 Governmental Consents.......................................5
3.8 Litigation..................................................5
3.9 Financial Statements........................................5
3.10 Absence of Liabilities......................................5
3.11 Tax Returns.................................................6
3.12 Property and Assets.........................................6
3.13 Intellectual Property.......................................6
3.14 Material Contracts and Obligations..........................6
3.15 Compliance..................................................7
3.16 Employee Matters............................................7
3.17 ERISA.......................................................7
3.18 Books and Records...........................................7
3.19 Environmental Matters.......................................7
3.20 Indebtedness................................................7
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
4. Representations and Warranties of the Purchaser......................8
4.1 Information.................................................8
4.2 Authority...................................................8
4.3 Suitability.................................................8
4.4 Lack of Liquidity...........................................9
4.5 Investment Intent...........................................9
5. Conditions to the Obligations of the Purchasers......................9
5.1 Accuracy of Representations and Warranties..................9
5.2 Performance.................................................9
5.3 Opinion of Counsel..........................................9
5.4 Other Agreements...........................................10
5.5 Certificates and Documents.................................11
6. Conditions to the Obligations of the Company........................11
6.1 Accuracy of Representations and Warranties.................11
6.2 Amendment to Note Purchase Agreement.......................12
6.3 Side Letter Regarding Bariston, LLC Commitment.............12
6.4 AT&T Loan Agreement........................................12
6.5 SIGECO Contribution........................................12
7. Covenants of the Company............................................11
7.1 Reimbursement of Expenses..................................11
7.2 Restricted Payments........................................11
8. Miscellaneous.......................................................12
8.1 Successors and Assigns.....................................12
8.2 Confidentiality............................................12
8.3 Survival of Representations and Warranties.................12
8.4 Notices....................................................12
8.5 Brokers....................................................13
8.6 Entire Agreement...........................................14
8.7 Amendments and Waivers.....................................14
8.8 Counterparts...............................................14
8.9 Section Headings...........................................14
8.10 Severability...............................................14
8.11 Governing Law..............................................14
</TABLE>
2
<PAGE> 4
SCHEDULE I - PURCHASERS
EXHIBITS
<TABLE>
<CAPTION>
Schedule 1.3 - Indebtedness to be Repaid at Closing
<S> <C>
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Exceptions to Representations and Warranties
Exhibit D - List of Stockholders
Exhibit E - Termination of Pledge Agreement
Exhibit F - Indebtedness of the Company
Exhibit G - Refinancing Lender Notes and Warrants
Exhibit H - Side Letter Regarding SIGECOM, LLC Board Seat
Exhibit I - Side Letter Regarding Bariston Partners, LLC Commitment
Exhibit J - Employee and Attorney Notes
</TABLE>
3
<PAGE> 5
NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement ("Agreement") dated as of
December 15, 1998 is entered into by and among Utilicom Networks, Inc., a
Delaware corporation (the "Company"), and the purchasers listed on Schedule 1
attached hereto (each referred to as a "Purchaser" and collectively as the
"Purchasers"). Williams Communications, Inc., one of the Purchasers hereunder,
is sometimes referred to herein as "Williams".
In consideration of the mutual promises and covenants contained in
this Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Securities.
1.1 Authorization. The Company has, or before the Closing (as
defined in Section 2.1) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of the following securities:
(a) The Notes. Convertible and exchangeable promissory notes
having an aggregate principal amount of up to Ten Million Five Hundred Thousand
Dollars ($10,500,000) (collectively, the "Notes" and individually a "Note")
which Notes shall accrue interest at a rate of twelve percent (12%) per annum.
Each Note shall be due and payable, together with any accrued and unpaid
interest thereon, on the earlier of: (i) June 30, 1999 (as such date may be
extended to July 31, 1999 pursuant to the terms of the Side Letter Regarding
Bariston Partners, LLC Commitment, the "Maturity Date"); or (ii) the occurrence
of a Material Event of Default, as defined in the Notes. Upon the occurrence of
a Material Event of Default, as such term is defined in the Note, with respect
to any Note, such Note may at the option of the holder and for a period of 30
days after the Purchaser is notified of such Material Event of Default (the
Notice Date) beginning on the date of such Notice Date, (the "Option Period")
either be (A) automatically converted into Common Stock, $.01 par value, of the
Company (the "Common Stock") at a per share price of $3.00 or (B) automatically
exchanged for all membership interests held by the Company (collectively, the
"SIGECOM Membership Interests") in SIGECOM, LLC, a subsidiary of the Company
("SIGECOM, LLC"), all in accordance with the terms and conditions of the Notes.
If a Purchaser does not convert or exchange its Note during the Option Period
it will be deemed, without further action on the part of such Purchaser, that
the Purchaser has demanded payment of all amounts due under such Note.
Each Note shall be substantially in the form of Exhibit A hereto.
(b) The Warrants. Common Stock purchase warrants
substantially in the form of Exhibit B hereto (each a "Warrant" and
collectively, the "Warrants"), which Warrants will be exercisable, in the
aggregate, for a total of 525,000 shares of Common
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<PAGE> 6
Stock (collectively, the "Warrant Shares"). The Warrant Shares shall be deemed
to be Conversion Shares as such term is defined in the Registration Rights
Agreement, dated as of May 8, 1998, among the Company and the Purchasers (the
"Registration Rights Agreement") and, upon issuance of the Warrant Shares, each
of the Purchasers as the holder of the Warrant Shares shall be entitled to
registration rights which are pari passu with those granted to the Purchasers
in the Registration Rights Agreement.
1.2 Purchase and Sale of Securities. In reliance upon the
representations and warranties and subject to the terms and conditions set
forth in this Agreement, at the Closing (as defined in Section 2.1) the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees to purchase, the Notes and the Warrants set forth opposite such
Purchaser's name on Schedule I. The purchase price for the Notes shall be the
face value of such Note. The Warrants shall be issued to the Purchasers as
additional consideration for the purchase of the Notes. Each Purchaser will, as
consideration for the Company's delivery to each such Purchaser of Notes with a
face value of Two Hundred and Fifty Thousand Dollars ($250,000), deliver to the
Company for cancellation promissory notes issued by the Company to each such
Purchaser pursuant to an Interim Loan Agreement, dated October 30, 1998, among
the Company and the Purchasers (the "Interim Promissory Notes"). The accrued
and unpaid interest on the Interim Promissory Notes will be paid in cash to the
Purchasers on the Closing Date. The Notes and the Warrants being sold under
this Agreement and the Common Stock issuable upon exercise of the Warrants are
referred to in this Agreement as the "Securities". The Company's agreement with
each of the Purchasers is a separate agreement, and the sale of Securities to
each of the Purchasers is a separate sale.
1.3 Use of Proceeds. The Company shall use the proceeds from
the sale of the Notes and Warrants (the "Proceeds") as follows: (i) first, at
the Closing, the Company will fund an equity investment in SIGECOM, LLC of
Seven Million Three Hundred Thousand Dollars ($7,300,000) (the "SIGECOM
Investment") in accordance with the terms of the Operating Agreement dated May
8, 1998 between the Company and Sigeco (the "Operating Agreement"); (ii)
second, to repay the currently outstanding indebtedness of the Company listed
on Schedule 1.3 and (iii) finally, for general working capital purposes
consistent with the Company's 1998 Budget as approved by the Company's Board of
Directors (the "Board of Directors").
1.4 Director. Simultaneously with the Closing (as defined in
Section 2.1), the members of the Board of Directors of the Company will take
all necessary action to elect Andrew Goebel to the Board of Directors.
2. Closing.
2.1 Closing. The closing (the "Closing") of the purchase of
Notes and Warrants by the Purchasers under this Agreement shall take place at
the offices of Peabody
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<PAGE> 7
& Arnold LLP, 50 Rowes Wharf, Boston, Massachusetts 02110, at 10:00 a.m. on
December 15, 1998, when the Purchasers shall have tendered their Investment, as
such term is defined in Section 2.2, or such other time, date and place
thereafter as the Company and the Purchasers may agree upon. At the Closing,
the Company shall deliver to the Purchasers their respective Notes and Warrants
against payment to the Company of the purchase price therefor, by wire
transfer, check, cancellation of the Interim Promissory Notes, or other method
acceptable to the Company. The date of the Closing is referred to herein as the
"Closing Date".
2.2 Investment. The term "Investment" shall mean, for each
Purchaser, the amount set forth opposite each Purchaser's name under "Total
Purchase Price" on Schedule 1 whether paid in cash or by exchange of Interim
Promissory Notes.
3. Representations and Warranties of the Company. Subject to and
except as disclosed by the Company in Exhibit C hereto, the Company hereby
represents and warrants to each of the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted by it and to enter into and perform this
Agreement and to carry out the transactions contemplated by this Agreement. The
Company is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the failure to so qualify would
have a material adverse effect on the operations or financial condition of the
Company. The Company has furnished to the Purchasers true and complete copies
of its Certificate of Incorporation (the "Certificate of Incorporation") and
By-Laws (the "By-Laws"), each as amended to date and presently in effect.
3.2 Capitalization. Prior to the Closing, the authorized
capital stock of the Company consists of 20,000,000 shares of Common Stock, of
which 3,245,006 shares are issued and outstanding, and 5,000,000 shares of
preferred stock, $.01 par value (the "Preferred Stock"), of which 10,000 shares
have been designated as Series B Redeemable Preferred Stock, $.01 par value
(the "Redeemable Preferred Stock") of which 10,000 shares are issued and
outstanding. The Company has also reserved (i) 3,000,000 shares of Common Stock
for issuance under the Company's 1996 Stock Option Plan (the "Stock Option
Plan") (which number includes 2,334,126 shares of Common Stock issuable upon
the exercise of options granted under the Stock Option Plan); and (ii) 767,735
shares of Common Stock issuable upon the exercise of the warrants listed on
Exhibit D. All of the Company's issued and outstanding shares of capital stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Exhibit C hereto or provided in this
Agreement, (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of capital
stock of the Company is authorized or outstanding, (ii) the Company has no
obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, and (iii) the Company has no obligation (contingent
- 3 -
<PAGE> 8
or otherwise) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
3.3 Subsidiaries, Etc. Except as listed on Exhibit C, the
Company has no subsidiaries and does not own or control, directly or
indirectly, any shares of capital stock of any other corporation or any
interest in any partnership, joint venture, limited liability company or other
non-corporate business enterprise.
3.4 Stockholder List and Agreements. Exhibit D attached
hereto sets forth a true and complete list of the stockholders of the Company,
showing the number of shares of Common Stock or other securities of the Company
held by each stockholder as of the date of this Agreement. Except as disclosed
in Exhibit C attached hereto or as provided in this Agreement, there are no
agreements, written or oral, between the Company and any holder of its capital
stock, or, to the best of the Company's knowledge, among any holders of its
capital stock, relating to the acquisition (including, without limitation,
rights of first refusal or pre-emptive rights), disposition, registration under
the Securities Act of 1933, as amended (the "Securities Act") or voting of the
capital stock of the Company.
3.5 Issuance of Securities. The issuance, sale and delivery
of the Securities in accordance with this Agreement have been, or will be on or
prior to the Closing, duly authorized by all necessary corporate action on the
part of the Company. The Securities when so issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement will be
duly and validly issued, fully paid and non-assessable. After consummation of
the transactions contemplated hereby, each purchaser shall own, beneficially
and of record and free and clear of any "Lien" (as defined below) that number
of Securities which each Purchaser purchases hereunder. "Lien" shall mean any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect to an asset.
3.6 Authority for Agreement. The execution, delivery and
performance by the Company of this Agreement, the Notes, the Warrants, the
Termination of Pledge Agreement (the "Pledge Termination Agreement") dated of
even date herewith between the Company and Williams terminating the Pledge
Agreement dated May 8, 1998 between the Company and Williams and all other
agreements or documents required pursuant to Section 5.4 hereof (all of the
above described documents except this Agreement, the "Ancillary Documents") and
the consummation by the Company of the transactions contemplated hereby and
thereby, have been or will be prior to the Closing duly authorized by all
necessary corporate action. This Agreement and the Ancillary
- 4 -
<PAGE> 9
Documents have been or prior to the Closing will be duly executed and delivered
by the Company and constitute or will prior to the Closing constitute valid and
binding obligations of the Company enforceable against the Company in
accordance with their respective terms. Except as set forth in Exhibit C, the
execution of and performance of the transactions contemplated by this Agreement
and the Ancillary Documents and compliance with their provisions by the Company
will not violate any provision of law and will not conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute a
default under, or require a consent or waiver under, or result in the creation
of any Lien under its Certificate of Incorporation or By-laws or any indenture,
lease, agreement or other instrument to which the Company is a party or by
which it or any of its properties is bound, or any decree, judgment, order,
statute, rule or regulation applicable to the Company.
3.7 Governmental Consents. Subject to the accuracy of the
representations and warranties of each of the Purchasers as set forth in
Section 4, and, except for the filing of any notice subsequent to the Closing
that may be required under applicable state or Federal securities laws (which,
if required, shall be filed on a timely basis in accordance with applicable
regulations), no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority is required on the part of the Company in connection with the
execution and delivery of this Agreement, the offer, issuance, sale and
delivery of the Securities, or the other transactions contemplated by this
Agreement, except such filings as shall have been made prior to and shall be
effective on and as of the Closing Date.
3.8 Litigation. Except as set forth in Exhibit C, there is no
action, suit or proceeding or governmental inquiry or investigation pending,
or, to the best of the Company's knowledge, any threat thereof, against the
Company, which questions the validity of this Agreement or the right of the
Company to enter into this Agreement, or which would result, either
individually or in the aggregate, in any material adverse effect on the
business, prospects, assets or condition, financial or otherwise, of the
Company.
3.9 Financial Statements. The Financial Statements (as
defined below) of the Company previously delivered to each of the Purchasers
present fairly the financial position of the Company as of the dates thereof
and its results of operations for the periods covered thereby and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied except that they contain no footnotes and may require
non-material adjustments to conform to GAAP. The Financial Statements are the
audited financial statements of the Company for the period from January 1, 1997
through December 31, 1997 and for the nine month period ended September 30,
1998 being unaudited and subject to year-end adjustments which in the aggregate
are not expected to be material. Since September 30, 1998 and except as set
forth on Exhibit C, (i) there has been no material adverse change in the
business, assets or condition, financial or otherwise, or operation of the
Company; (ii) neither the business, condition nor
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<PAGE> 10
operations of the Company nor any of its properties or assets has been
materially adversely affected as a result of any legislative or regulatory
change, any revocation or change in any franchise, license or right to do
business, or any other event or occurrence, whether or not insured against; and
(iii) the Company has not entered into any material transaction or made any
distribution on its capital stock or other ownership interest.
3.10 Absence of Liabilities. Except as disclosed in Exhibit
C, the Company did not have, at September 30, 1998, any liabilities, Liens or
obligations of any type which in the aggregate exceeded $100,000, whether
absolute or contingent, which were not fully reflected on the Financial
Statements, and, since September 30, 1998, the Company has not incurred or
otherwise become subject to any such liabilities, Liens or obligations which in
the aggregate exceeded $100,000.
3.11 Tax Returns. The Company has completely and accurately
prepared and timely filed all Federal, state and other tax returns required by
law to be filed by it, and all taxes (including all withholding taxes) shown to
be due and all additional assessments have been paid or provisions made
therefor. The Company knows of no additional material assessments or
adjustments pending or threatened against the Company for any period, nor of
any basis for any such material assessment or adjustment.
3.12 Property and Assets. The Company has good and marketable
title to all of its material properties and assets, including but not limited
to all properties and assets reflected on the Financial Statements, and none of
such properties or assets is subject to any Lien or liability other than those,
if any, the material terms of which are described in the Financial Statements
or in Exhibit C.
3.13 Intellectual Property. Exhibit C sets forth a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyright registrations
and licenses presently used by the Company or necessary for the conduct of the
Company's business as presently conducted as well as any agreement under which
the Company has access to any confidential information used by the Company in
its business (the "Intellectual Property Rights"). The Company owns, or has the
right to use under the agreements or upon the terms described in Exhibit C, all
of the Intellectual Property Rights, and has taken all actions reasonably
necessary to protect and preserve the Intellectual Property Rights. To the
Company's knowledge, the business conducted by the Company does not and will
not cause the Company to infringe or violate any of the patents, trademarks,
service marks, trade names, copyrights, licenses, trade secrets or other
intellectual property rights of any other person or entity. To the Company's
knowledge, no other person or entity (including without limitation any prior
employer of any officer, director or employee of the Company) has the right to
use or any interest in any inventions, improvements, discoveries or other
confidential information utilized by the Company in its business, except as set
forth in Exhibit C.
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<PAGE> 11
3.14 Material Contracts and Obligations. Except for this
Agreement and the Ancillary Documents, Exhibit C sets forth a list of all
material agreements or commitments of any nature to which the Company is a
party or by which it is bound, including without limitation: (i) each agreement
which requires future expenditures by the Company in excess of $100,000 or
which might result in payments to the Company in excess of $100,000; (ii) all
employment and consulting agreements, employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and
arrangements, and distributor and sales representative agreements; (iii) any
agreement with any stockholder, officer or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), including without
limitation any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payment to, any such person or entity and (iv) any agreement relating to the
Intellectual Property Rights. The Company has delivered to the Purchasers
copies of such of the foregoing agreements to the extent such delivery has been
requested in writing. All of such agreements and contracts are valid, binding
and in full force and effect, and, except as set forth on Exhibit C, to the
Company's knowledge, no party is currently in breach or default thereunder.
3.15 Compliance. The Company has, in all material respects,
complied with all laws, regulations and orders applicable to its business and
has all material permits and licenses required thereby. There is no term or
provision of any mortgage, indenture, contract, agreement or instrument to
which the Company is a party or by which it is bound, or, to the best of the
Company's knowledge, of any provision of any state or Federal judgment, decree,
order, statute, rule or regulation applicable to or binding upon the Company,
with respect to which the Company is not in material compliance or which
materially adversely affects the business, prospects, assets or condition,
financial or otherwise, of the Company.
3.16 Employee Matters. None of the employees of the Company
is represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.17 ERISA. Effective November 1, 1998, the Company adopted a
401(k) Pension Plan which is subject to the Employee Retirement Income Security
Act of 1974, as amended.
3.18 Books and Records. The minute book of the Company
contains complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and any committees
thereof. The stock ledger of the Company is complete and reflects all
issuances, transfers, repurchases and
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<PAGE> 12
cancellations of shares of capital stock of the Company.
3.19 Environmental Matters.
(a) The operation of the business is in all material
respects in compliance with all applicable environmental laws (whether federal,
state, local or foreign law (including common law), statute, code, ordinance,
rule, regulation or other requirement relating to the environment, natural
resources, or public and employee health and safety).
(b) To the Company's knowledge, all real property owned
or leased by the Company and, all property adjacent thereto, is free of
contamination by or from any hazardous materials at concentrations exceeding
those allowed by such environmental laws.
3.20 Indebtedness. A schedule of Indebtedness of the Company
is set forth in Exhibit F, and except as provided in Schedule 3.20, none of
such Indebtedness is currently in default. "Indebtedness" means all
obligations, contingent and otherwise, which should, in accordance with
generally accepted accounting principles consistently applied, be classified
upon the Company's balance sheet as liabilities, but in any event including,
without limitation, liabilities secured by any mortgage on property owned or
acquired subject to such mortgage, whether or not the liability secured thereby
shall have been assumed, and also including, without limitation: (i) all
guaranties, endorsements and other contingent obligations, in respect of
indebtedness of others, whether or not the same are or should be so reflected
in said balance sheet, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (ii) the present value of any lease payments due under
leases required to be capitalized in accordance with applicable Statements of
Financial Accounting Standards, determined in accordance with applicable
Statements of Financial Accounting Standards.
4. Representations and Warranties of the Purchasers. Each of the
Purchasers severally represents and warrants to the Company:
4.1 Information. The officers of the Company have made
available to each Purchaser any and all written information which such
Purchaser has requested and have answered, to such Purchaser's satisfaction,
all inquiries made by such Purchaser. Each Purchaser understands that no
Federal or state agency or authority has reviewed or passed upon the sale of
the Securities contemplated hereby.
4.2 Authority. Such Purchaser has full power and authority to
enter into and to perform this Agreement in accordance with its terms. The
execution of and the performance of the transactions contemplated by this
Agreement and the compliance by such Purchaser with the provisions thereof will
not violate, conflict with or result in
- 8 -
<PAGE> 13
a breach of any of the terms, conditions or provisions of, or constitute a
default under, or require a consent or waiver under any indenture, lease,
agreement or other instrument to which such Purchaser is a party or by which
such Purchaser or any of such Purchaser's properties are bound. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 Suitability. Such Purchaser has knowledge and experience
in financial and business matters which enable such Purchaser to evaluate the
merits and risks of making an investment in the Company. Such Purchaser has
made an independent examination of the investment, accounting and tax aspects
of the proposed purchase transaction having relied solely upon the advice, if
any, of such Purchaser's counsel, accountants, or business advisors with regard
to the various considerations involved in making an investment in the Company,
and agrees that the Company has no responsibility with respect to such matters
and any such advice. Such Purchaser hereby confirms to the Company that such
Purchaser has been granted an opportunity to ask questions of and receive
answers from officers and directors of the Company concerning the Company, the
terms and conditions of the Investment and other matters and to obtain all
additional information which such Purchaser deems necessary to evaluate the
merits and risks of making an investment in the Company. Such Purchaser
acknowledges and understands that the purchase of Securities is speculative and
involves a high degree of risk.
4.4 Lack of Liquidity. Such Purchaser has adequate means of
providing for current needs and possible contingencies without resorting to the
sale of the Securities and has no need for liquidity of the investment made in
the Company. In making this representation and warranty, such Purchaser
understands that an investment in the Company is an illiquid investment. In
particular, such Purchaser understands that the Securities are being offered
and sold without registration under the Securities Act, and, therefore, cannot
be resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available. Such Purchaser acknowledges that the Company is under no
obligation to comply with Regulation A or any other exemption requirement under
the Securities Act or to supply information necessary to permit routine sales
under Rule 144.
4.5 Investment Intent. Such Purchaser is acquiring the
Securities for such Purchaser's own account for investment and not with a view
to, or for sale in connection with, any distribution thereof, nor with any
present intention of distributing or selling the same; and, except as
contemplated by the Ancillary Documents, such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof.
5. Conditions to the Obligations of the Purchasers. The
obligation of each of the Purchasers to purchase Securities at the Closing is
subject to the fulfillment, or the
- 9 -
<PAGE> 14
waiver by such Purchaser, of each of the following conditions on or before the
Closing Date:
5.1 Accuracy of Representations and Warranties. Each
representation and warranty contained in Section 3 shall be true on and as of
the Closing Date with the same effect as though such representation and
warranty had been made on and as of that date.
5.2 Performance. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement
required to be performed or complied with by the Company prior to or at the
Closing Date.
5.3 Opinion of Counsel. Each Purchaser shall have received an
opinion from Peabody & Arnold, counsel for the Company, dated as of the Closing
Date addressed to such Purchaser hereunder, substantially to the effect that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to conduct its business as presently
conducted, to enter into and perform this Agreement and the Ancillary Documents
and to carry out the transactions contemplated by this Agreement and the
Ancillary Documents. Based solely on the representations of the Company in this
Agreement, the Company is duly qualified to do business and in good standing in
Delaware, and in every other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition
of the Company.
(b) Based solely upon such counsel's review of the minute
books and stock records of the Company, and except for changes contemplated by
this Agreement, the authorized and issued and outstanding capital stock of the
Company is as described in Section 3.2 of this Agreement. Based solely upon
such counsel's review of the minute book and stock records of the Company, all
issued and outstanding shares of capital stock of the Company have been duly
authorized and are validly issued.
(c) The Securities have been duly authorized and, if
applicable, reserved for issuance, by all necessary corporate action on the
part of the Company. The Securities, when issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement, will be
validly issued, fully paid and non-assessable.
(d) The execution, delivery and performance by the
Company of this Agreement and the Ancillary Documents have been duly authorized
by all necessary corporate action and this Agreement and the Ancillary
Documents have been duly executed and delivered by the Company. This Agreement
and the Ancillary Documents constitute the valid and binding obligations of the
Company, enforceable against the
- 10 -
<PAGE> 15
Company in accordance with their respective terms, subject as to enforcement of
remedies to applicable bankruptcy, insolvency, reorganization or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies. The execution and
delivery of this Agreement and the Ancillary Documents and the offer, issue and
sale of the Securities hereunder will not result in any breach of any of the
terms, conditions, or provisions of, or constitute a default under, the
Certificate of Incorporation or By-laws of the Company, each as amended as of
the Closing Date, or, based solely upon the Company's representations in this
Agreement and to such counsel's knowledge, any indenture, lease, agreement, or
other instrument to which the Company is a party or by which it or any of its
properties are bound, or any decree, judgment or order specifically naming the
Company of which such counsel is aware. (e) To such counsel's knowledge, there
is no action, suit or proceeding or governmental inquiry or investigation,
pending, or any threat thereof, against the Company, which questions the
validity of this Agreement or the Ancillary Documents or the right of the
Company to enter into such agreements, or which would result, if determined
adversely to the Company, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets or condition,
financial or otherwise, of the Company, nor to such counsel's knowledge is
there any litigation pending or threatened against the Company, except as
disclosed in Exhibit C.
5.4 Other Agreements.
(a) The Termination of Pledge Agreement attached hereto as
Exhibit E, shall have been executed and delivered by the parties named therein.
(b) The Refinancing Lender Notes and Warrants each in the form
attached hereto as Exhibit G shall have been executed and delivered by the
parties named, and in the amounts noted, on Exhibit G.
(c) The Side Letter Regarding SIGECOM, LLC Board Seat, attached
hereto as Exhibit H, shall have been executed and delivered by the parties
named therein.
(d) The Side Letter Regarding the Bariston Partners, LLC
Commitment attached hereto as Exhibit I, shall have been executed and delivered
by the parties named therein.
(e) The Employee and Attorney Notes, each in the form attached
hereto as Exhibit J shall have been executed and delivered by the parties
named, and in the amounts noted, on Exhibit J.
(f) The Loan Agreement, dated as of the date hereof, among AT&T
Commercial Financial Corporation, SIGECOM, LLC and the other parties named
therein (the "AT&T Loan Agreement") shall have been executed and delivered by
the parties thereto and the
- 11 -
<PAGE> 16
initial Advance, as such term is defined in the AT&T Loan Agreement, shall have
been delivered to SIGECOM, LLC.
5.5 Certificates and Documents. The Company shall have
delivered to each of the Purchasers:
(a) A copy of the Certificate of Incorporation of the
Company, as amended and in effect as of the Closing Date, as certified by the
Secretary of the State of Delaware;
(b) Copies of certificates, as of the most recent
practicable dates, as to the corporate good standing of the Company issued by
the Delaware Secretary of State, the Secretary of State of the State of Indiana
and of The Commonwealth of Massachusetts;
(c) By-laws of the Company, certified by the Secretary of
the Company as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement, the
Ancillary Documents, and the transactions contemplated hereby and thereby
certified by the Secretary of the Company as of the Closing Date.
6. Condition to the Obligations of the Company. The obligation
of the Company to issue and sell Securities at the Closing, to each of the
Purchasers is subject to fulfillment, or the waiver, of the following
conditions by each of the Purchasers on or before the Closing Date:
6.1 Accuracy of Representations and Warranties. The
representations and warranties of such Purchaser contained in Section 4 shall
be true on and as of the Closing Date with the same effect as through such
representations and warranties had been made on and as of that date.
6.2 Termination of Pledge Agreement. Williams shall have
executed and delivered to the Company the Termination of Pledge Agreement
substantially in the form of Exhibit E.
6.3 AT&T Loan Agreement. The AT&T Loan Agreement shall have
been executed and delivered and the initial Advance shall have been delivered
to SIGECOM, LLC.
6.4 SIGECO Contribution. SIGECO Advanced Communications, Inc.
("SIGECO"), a Purchaser hereunder, shall have delivered $7,300,000 to SIGECOM,
LLC as
- 12 -
<PAGE> 17
an equity investment in accordance with the terms of the Operating Agreement.
7. Covenants of the Company.
7.1 Reimbursement of Expenses. Within thirty (30) days after
receiving an invoice therefor and reasonable documentation thereof, the Company
shall reimburse the Purchasers for all of their out-of-pocket and third party
expenses (including, but not limited to, in-house counsel fees) in connection
with the transactions contemplated herein and in the Ancillary Documents.
7.2 Restricted Payments. The Company will not: (a) declare or
make any dividends on shares of capital stock of the Company, or (b) except
with respect to the Notes and the Indebtedness listed on Schedule 1.3 hereto,
purchase, redeem, retire, decease or otherwise acquire for value, deposit any
monies with any person with respect to, or make any voluntary payment or
prepayment of the principal of or interest on, or any other amount owing in
respect of, any indebtedness other than regularly scheduled payments of
principal or interest in respect thereof required to be made pursuant to the
instruments evidencing such indebtedness.
7.3 Notice. The Company shall give the Purchasers prompt
written notice of any Event of Default or Material Event of Default, as such
terms are defined in the Notes.
8. Miscellaneous.
8.1 Successors and Assigns. This Agreement, and the rights
and obligations of each Purchaser hereunder, may be assigned by such Purchaser
to any person or entity to which Securities are transferred by such Purchaser
not in violation of the terms of this Agreement or in violation of applicable
securities laws, and such transferee shall be deemed a "Purchaser" for purposes
of this Agreement; provided that the transferee provides written notice of such
assignment to the Company.
8.2 Confidentiality. Each Purchaser agrees that such
Purchaser shall keep confidential and will not disclose or divulge any
confidential, proprietary or secret information which such Purchaser may obtain
from the Company, including, without limitation, financial statements, reports
and other materials submitted by the Company to such Purchaser in connection
with the transactions contemplated by or pursuant to this Agreement, or
pursuant to visitation or inspection rights granted hereunder, unless such
information is known, or until such information becomes known, generally to the
public; provided, however, that a Purchaser may disclose such information (i)
to a Purchaser's attorneys, accountants, consultants, and other professionals
solely to the extent necessary to obtain their services in connection with its
investment in the Company, (ii) to any prospective purchaser of any Securities
from such Purchaser as long as such prospective
- 13 -
<PAGE> 18
purchaser agrees in advance and in writing (with a copy of such agreement and a
list identifying all materials proposed to be furnished provided first to the
Company) to be bound by the provisions of this Section 8.2, (iii) to any
affiliate of such Purchaser or to a member, partner, shareholder or subsidiary
of such Purchaser provided such person first agrees in writing to be bound by
this Section 8.2 and a copy of such writing is first furnished to the Company,
or (iv) if required to do so by an arbitration tribunal or a court of competent
jurisdiction or applicable law.
8.3 Survival of Representations and Warranties. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Closing of the transactions
contemplated hereby.
8.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, by overnight courier service, facsimile or mailed by first class
certified or registered mail, return receipt requested, postage prepaid, as
follows:
If to the Company, at 124 Grove Street, Suite 220, Franklin,
Massachusetts, 02038-3159, Facsimile Number (508) 553-7100 Attention: Charles
R. Cadle, President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers; or
If to a Purchaser, at the address set forth on such Purchaser's
counterpart signature page, or at such other address or addresses as may have
been furnished to the Company in writing by such Purchaser.
Notices provided in accordance with this Section 8.4 shall be deemed
delivered upon personal delivery, upon receipt of facsimile confirmation or two
business days after deposit in the mail.
8.5 Brokers. Except as set forth on Exhibit C, the Company
and each Purchaser (i) represents and warrants to the other parties hereto that
he, she or it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and (ii) will indemnify and save
the other parties harmless from and against any and all claims, liabilities or
obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
8.6 Entire Agreement. This Agreement, the Ancillary
Agreements, embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.
- 14 -
<PAGE> 19
8.7 Amendments and Waivers. Except as otherwise expressly set
forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively) with the
written consent of the parties hereto. Any amendment or waiver effected in
accordance with this Section 8.7 shall be binding upon each holder of any
Securities, each future holder of such Securities and the Company. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
8.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
8.9 Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
8.10 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts,
excluding conflicts of law provisions.
8.12 Waiver of Jury Trial. The Company and each of the
Purchasers hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any right that it may have to a trial by
jury of any suit, action or proceeding (whether a claim in tort, contract,
equity, or otherwise) arising out of or relating to a dispute under this
Agreement, the Notes or the Warrants, and agrees that any such dispute shall be
tried before a judge sitting without a jury.
- 15 -
<PAGE> 20
This Agreement is hereby executed by the undersigned as of the day and
year first written above.
COMPANY:
UTILICOM NETWORKS, INC.
By:
----------------------------
Name: Charles R. Cadle
Title: President
<PAGE> 21
SECURITIES PURCHASE AGREEMENT
COUNTERPART PURCHASER SIGNATURE PAGE
Principal Amount of Notes Purchased:
Warrants Purchased: $ 325,000.00
------------
Total purchase price: $ 6,500,000.00
------------
Cash: $ 6,250,000.00
------------
Interim Promissory Notes: $ 250,000.00
------------
Entity Name: SIGECO ADVANCED COMMUNICATIONS, INC.
------------------------------------
By: /s/ANDREW E. GOEBEL
---------------------------------
Andrew E. Goebel
Its: Secretary
--------------------------------
Address: 20 N.W. Fourth Street
---------------------------
Evansville, IN 47735-0306
- -------------------------------------
<PAGE> 22
SECURITIES PURCHASE AGREEMENT
COUNTERPART PURCHASER SIGNATURE PAGE
Principal Amount of Notes Purchased:
Warrants Purchased: 200,000
Total purchase price: $ 4,000,000.00
------------
Cash: $ 3,750,000.00
------------
Interim Promissory Notes: $ 250,000.00
------------
Entity Name: Williams Communications, Inc.
------------------------------------
By: /s/ JAMES DUTTON
---------------------------------
Its: Vice President
--------------------------------
Address:
---------------------------
- -------------------------------------
Copies of all notices required or permitted hereunder shall
be sent to the following addresses or fax numbers:
Attn: James W. Dutton
Williams Communications, Inc.
One Williams Center, 26th Floor
Tulsa, Oklahoma 74172
Fax: 918-573-6216
With a
copy to: General Counsel
Williams Communications, Inc.
One Williams Center, 41st Floor
Tulsa, Oklahoma 74172
Fax: 918-573-3005
<PAGE> 23
EXHIBIT A
FORM OF NOTE
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS PROMISSORY NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS PROMISSORY NOTE UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
UTILICOM NETWORKS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
$ Date:
------------ ---------------
FOR VALUE RECEIVED, Utilicom Networks, Inc. a Delaware corporation (the
"Company") hereby promises to pay to the order of _____________, the principal
amount of ____ Dollars ($_____), plus interest as set forth herein on the
principal balance from time to time outstanding. Interest shall accrue on the
principal balance outstanding at a rate equal to 12% per annum (the "Interest
Rate"). Interest shall be calculated on the basis of actual number of days
elapsed over a year of 360 days. Notwithstanding any other provision of this
Promissory Note, the holder hereof does not intend to charge, and the Company
shall not be required to pay, any interest or other fees or charges in excess of
the maximum permitted by applicable law; and any payments in excess of such
maximum shall be refunded to the Company or credited to reduce principal
hereunder. All payments received by the holder hereunder will be applied first
to costs of collection, if any, then to interest and the balance to principal.
Payments of principal and interest will be made by check or wire transfer in
immediately available United States funds sent to the holder at the address or
pursuant to the wiring instructions furnished to the Company for that purpose.
The entire unpaid principal balance of this Promissory Note and all accrued
and unpaid interest thereon and all other fees, charges, costs and expenses
hereunder (the "Indebtedness") shall become immediately due and payable, without
demand, on the earlier of: (i) June 30, 1999 (as such date may be extended to
July 31, 1999 pursuant to the terms of the Bariston Side Letter (as defined
below) the "Maturity Date"); (ii) an Event of Default as defined in the Note
Purchase Agreement (the "Williams Note Purchase Agreement") dated as of May 8,
1998 between the Company and Williams Communications, Inc. ("Williams"); or
(iii) as pertains to the Company, upon the occurrence of any one or more of the
following events (a) the filing of any complaint, application or petition or the
entry of any order or judgment seeking or granting relief pursuant to Title 11
of the United States Code entitled "Bankruptcy", as amended from time to time,
or pursuant to any similar state or federal law or procedure for any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for debtors; (b) the appointment of any trustee, receiver,
master.
<PAGE> 24
assignee, liquidator, custodian or other similar party: or (c) the assignment
for the benefit of creditors or creation of any trust mortgage or any other
rearrangement, extension or other arrangement for relief from or restructuring
of debts (the failure of the Company to pay the Indebtedness on or before the
Maturity Date and each of the events listed in (ii) and (iii) shall constitute
an "Event of Default"). The term "Bariston Side Letter" refers to the Side
Letter Regarding Bariston Partners, LLC Commitment, dated the date hereof, among
Bariston Partners, LLC ("Bariston") the Company, Williams and SIGECO Advanced
Communications, Inc. ("Sigeco").
Upon the occurrence of an Event of Default, the holder of this
Promissory Note may declare a default and demand payment of all amounts owing
hereunder. Upon the occurrence of a Material Event of Default (as defined
below), for a period of 30 days after the holder is notified of such Material
Event of Default (the "Option Period") the holder may at its option either: (i)
convert all of the then current outstanding principal balance of this Promissory
Note and all accrued interest hereon into such number of fully paid and
non-assessable shares of common stock, $.01 par value, of the Company (the
"Common Stock") at the rate of one share of Common Stock for each $3.00
converted; or (ii) exchange, on a pro rata basis with all other holders of
Promissory Notes issued pursuant to the terms of the Note and Warrant Purchase
Agreement, dated the date hereof, among the Company, Williams and Sigeco (the
"Note and Warrant Purchase Agreement"), the principal balance of this Promissory
Note (the "Conversion Balance") for all of SIGECOM, LLC Membership Interest
currently held by the Company. If the holder does not convert or exchange this
Promissory Note during the Option Period, then the holder of this Promissory
Note will be deemed to have demanded payment of all amounts then owing
hereunder. The term "Material Event of Default" as used herein means any of the
following: (a) the failure by the Company to pay all amounts owing hereunder on
the Maturity Date (b) a non-payment Event of Default, as such term is defined in
this Promissory Note, which is not cured within thirty (30) days of such Event
of Default; or (c) any Event of Default, as such term is defined in the Loan
Agreement dated the date hereof among SIGECOM, LLC, AT&T Commercial Financial
Corporation and the other parties named therein (the "Loan Agreement"), which
results in an acceleration of all amounts owed pursuant to the terms of the Loan
Agreement.
If the holder of this Promissory Note elects to exchange the Conversion
Balance into SIGECOM, LLC Membership Interest as set forth above then all
accrued and unpaid interest on this Promissory Note shall be paid, in cash, to
the holder on the date of such exchange.
No fractions of shares of Common Stock or scrip representing fractions
of shares of Common Stock or fractions or SIGECOM, LLC Membership Interests
shall be issued upon conversion or exchange, as applicable, of this Promissory
Note. If any fraction of a share of Common Stock or SIGECOM, LLC Membership
Interests would, except for the provisions of this paragraph, be deliverable on
the conversion or exchange, as applicable, of the Conversion Balance, the
Company shall make payment in lieu thereof in an amount of cash equal to the
value of such fractional share or SIGECOM, LLC Membership Interest.
2
<PAGE> 25
This Promissory Note may be prepaid at any time without premium or
penalty, in whole but not in part except as set forth below. Any prepayment
shall be accompanied by a payment of accrued interest in respect of the
principal being prepaid.
The Company shall prepay, in equal amounts, this Promissory Note and
by the Company pursuant to the terms of the Note and Warrant Purchase Agreement
with the proceeds of any Qualified Equity Financing which is completed by the
Company prior to the Maturity Date. As used herein, the term "Qualified Equity
Financing" shall mean any offering by the Company of equity securities of the
Company resulting in the receipt of cash proceeds by the Company which alone, or
when added to cash proceeds received by the Company in any other equity
financing completed by the Company on or after the date hereof through the
Maturity Date, equals at least One Million Dollars ($1,000,000).
[SIEGCO ONLY If, prior to the Maturity Date, the Company prepays Four
Million Dollars ($4,000,000) of the principal amount of this Promissory Note
then the remaining principal amount of this Promissory Note, and all accrued
interest hereon, will be automatically converted, without any action on the part
of the holder, into equity securities of the Company sold in the most recently
completed Qualified Equity Financing at the same price and on the same terms as
the investors who participated in such Qualified Equity Financing.]
[WILLIAMS ONLY In addition, if, at any time that principal or accrued
interest on this Promissory Note remains outstanding, the holder desires to
purchase one or more Notes pursuant to the terms of the Williams Note Purchase
Agreement then, at the option of the holder, the holder may apply any principal
and interest outstanding under this Promissory Note toward the purchase of such
Note or Notes.
This Promissory Note is one of the Promissory Notes of like tenor to be
issued to several holders pursuant to, and the holder is entitled to the
benefits of, the Note and Warrant Purchase Agreement, and the holder, by
acceptance of this Promissory Note, agrees to be bound by the provisions of the
Note and Warrant Purchase Agreement. This Promissory Note will be recorded on
the books of the Company or its agent as to principal and interest. Any transfer
of this Promissory Note will be effected only by surrender of this Promissory
Note to the Company and reissuance of a new note to the transferee.
The Company agrees to pay the holder's reasonable costs in collecting
and enforcing this Promissory Note, including reasonable attorney's fees.
No waiver of any obligation of the Company under this Promissory Note
shall be effective unless it is in a writing signed by the holder. A waiver by
the holder of any right or remedy under this Promissory Note on any occasion
shall not be a bar to exercise of the same right or remedy on any subsequent
occasion or of any other right or remedy at any time.
3
<PAGE> 26
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
delivered personally or by overnight courier to the party to whom notice is to
be given at the address set forth in the Note and Warrant Purchase Agreement, or
on the third business day after mailing, if mailed to the party to whom notice
is to be given, by certified mail, return receipt requested, postage prepaid,
and addressed to the addressee at the address of the addressee set forth in the
Note Purchase Agreement, or, in each case, to the most recent address, specified
by written notice, given to the sender pursuant to this paragraph.
The Company hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
This Promissory Note shall not be assignable by a holder in whole or in
part, except to an affiliate of the holder, without the prior written consent of
the Company.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of The Commonwealth of Massachusetts, without regard to
conflicts of law principles.
UTILICOM NETWORKS, INC.:
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
4
<PAGE> 27
EXHIBIT B
FORM OF WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH
RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. ___ Number of Shares:___
UTILICOM NETWORKS, INC.
Void after December ___, 2008
1. Issuance. This Warrant is issued to _________ (the "Holder"), by
Utilicom, Networks, Inc., a Delaware corporation (hereinafter with its
successors called the "Company") as of December ___, 1998 (the "Original Issue
Date"). Reference is made to a Note and Warrant Purchase Agreement dated as of
the date hereof among the Company, the Holder and the other parties thereto
(the "Note and Warrant Purchase Agreement"), the terms of which are
incorporated herein by reference. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Note and Warrant Purchase
Agreement.
2. Purchase Price; Number of Shares. Subject to the terms and conditions
hereinafter set forth and commencing on the date hereof, the registered holder
of this Warrant (the "Holder"), is entitled; upon surrender of this Warrant and
the subscription form annexed hereto duly executed and delivered to the office
of the Company, located at 124 Grove Street, Suite 220, Franklin, Massachusetts
02038, or such other office as the Company shall notify the Holder of in
writing, to purchase from the Company ____ shares (as adjusted for any stock
split, combination, consolidation, or stock distributions or stock dividends
with respect to such shares) of fully paid and nonassessable shares of Common
Stock, $.01 par value, of the Company (the "Common Stock") at a price per share
(the "Purchase Price") equal to the lower of (i) $3.00 per share of Common
Stock or (ii) Eighty Percent (80%) of the lowest price paid per share of Common
Stock or Convertible Securities (as defined herein) equivalent to one share of
Common Stock, by investors in any equity financing completed by the Company
prior to the Maturity Date. Until such time as this Warrant is exercised in
full or expires, the applicable Purchase Price and the securities issuable upon
exercise of this Warrant are subject to adjustment as hereinafter provided.
3. Payment of Purchase Price. The Purchase Price applicable in
accordance with Section 2 above may be paid (i) in cash or by check, (ii) by
the surrender by the Holder to the Company of any promissory notes or other
obligations issued by the Company, with all
<PAGE> 28
such notes and obligations so surrendered being credited against the applicable
Purchase Price in an amount equal to the principal amount thereof plus accrued
interest to the date of surrender or (iii) by any combination of the foregoing.
4. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall issue
to the Holder such number of fully paid and nonassessable shares of Common
Stock as is computed using the following formula:
X = Y (A - B)
---------
A
where X = the number of shares to be issued to the Holder pursuant to this
Section 4.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this Section 4.
A = the fair market value of one share of Common Stock, as determined in
good faith by the Board, as at the time the net issue election is made pursuant
to this Section 4.
B = the applicable purchase price in effect under this Warrant at the
time the net issue election is made pursuant to this Section 4.
The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.
5. Partial Exercise. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which
this Warrant shall not have been exercised.
6. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
of the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
7. Expiration Date. This Warrant shall expire at the close of business
on December ____, 2008, and shall be void thereafter.
8. Reserved Shares; Valid Issuance. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, free from all preemptive or
similar rights therein, as will be
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<PAGE> 29
sufficient to permit the exercise of this Warrant in full. The Company further
covenants that such shares as may be issued pursuant to the exercise of this
Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
9. Adjustment for Stock Splits, Reverse Stock Splits or Stock Dividends.
If after the Original Issue Date (as defined in Section 1 hereof) the Company
shall subdivide the Common Stock, by split-up or otherwise, or combine the
Common Stock, or issue additional shares of Common Stock in payment of a stock
dividend on the Common Stock, the number of shares issuable on the exercise of
this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, and the applicable Purchase Price shall forthwith be
proportionately decreased in the case of a subdivision or stock dividend, or
proportionately increased in the case of a combination.
10. Mergers and Reclassifications. If after the Original Issue Date there
shall be any reclassification, capital reorganization or change of the Common
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 9 hereof), or any consolidation of the Company with, or
merger of the Company into, another corporation or other business organization
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Common Stock), or any sale or conveyance to another corporation or
other business organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the
exercise of this Warrant in full, the kind and amount of shares of stock and
other securities and property receivable upon such reclassification,
reorganization, change, consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock which might have been purchased by the
Holder immediately prior to such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, and in any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
to the end that the provisions hereof (including without limitation, provisions
for the adjustment of the Purchase Price and the number of shares issuable
hereunder) shall thereafter be applicable in relation to any shares of stock or
other securities and property thereafter deliverable upon exercise hereof.
11. Adjustments for Issuances Below Purchase Price. In case the Company
shall at any time or from time to time after the Original Issue Date issue or
sell any additional shares of Common Stock, other than Excluded Stock, as
defined below, (the "Additional Shares of Common Stock") for a consideration
per share less than or equal to the applicable Purchase Price in effect for
this Warrant immediately prior to the time of such issue or sale of such
additional shares of Common Stock (excluding transactions covered by Section 9
or 10
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<PAGE> 30
hereof) then forthwith upon such issue or sale as the case may be, the
applicable Purchase Price shall be reduced to a price calculated as follows:
Adjusted Purchase Price = (Outstanding Stock x Purchase Price) - Additional
Stock Consideration
-------------------------------------------------
Outstanding Stock - No. of Additional Shares of
Common Stock
As used herein:
"Additional Stock Consideration" means the consideration received by the
Company upon the issuance of the Additional Shares of Common Stock.
"Convertible Securities" means any evidences of indebtedness, shares or
securities, in each case convertible into or exchangeable for Additional Shares
of Common Stock.
"Excluded Stock" means: (a) shares of Common Stock issued or issuable on
conversion of the Company's Series B Reedemable [sic] Preferred Stock issued and
outstanding as of the date hereof; (b) up to 3,000,000 shares of Common Stock
issued or issuable upon the exercise of stock options issued pursuant to the
Company's 1996 Employee Stock Option Plan, as amended from time to time; (c) all
shares of stock issued or issuable upon the exercise of Options of the Company
issued and outstanding as of the date hereof and (d) all shares of stock issued
or issuable upon the exercise of the Bariston Fee Warrants.
"No. of Additional Shares of Common Stock" means the number of shares of
Additional Shares of Common Stock issued in connection with the issuance of the
same.
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire Common Stock or Convertible Securities.
"Outstanding Stock" means the total number of shares of Common Stock
outstanding plus the total number of shares of Common Stock issuable upon
conversion or exercise of outstanding preferred stock or Convertible Securities
or Options (including this Warrant and all other warrants) immediately prior to
the issuance of the Additional Shares of Common Stock.
No adjustment in the Purchase Price need be made if such adjustment would
result in a change in the Purchase Price of less than $0.01. Any such adjustment
which is not made shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in the Purchase Price. No adjustment in the
Purchase Price of this Warrant shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for such
Additional Shares of Common Stock issued or deemed to be issued by the Company
is less than the Purchase Price then in effect on the date of, and immediately
prior to, such issue, for this Warrant.
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<PAGE> 31
In the event of any adjustment in the Purchase Price pursuant to this
Section, the number of shares issuable upon exercise of this Warrant shall be
simultaneously adjusted to that number determined by dividing (a) the aggregate
Purchase Price which would have been payable had this Warrant been exercised in
full, for cash, immediately prior to such issuance, by (b) the Adjusted
Purchase Price.
For purposes of making any adjustment required under this Section, the
consideration received by the Company for any issue or sale of securities shall
(a) to the extent that it consists of cash be computed as the net amount of
cash received by the Company after deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale, (b) to the extent that it consists of
property other than cash, be computed at the fair market value of that property
as determined in good faith by the Board of Directors, and (c) if Additional
Shares of Common Stock, Convertible Securities or right or Options are issued
or sold together with other stock or securities or other assets of the Company
for a consideration which covers both, the consideration received shall be
computed (as provided in clauses (a) and (b) above) as the portion of the
consideration so received that may be reasonably determined in good faith by
the Board of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities, or rights or Options.
For purposes of the adjustment required under this Section, if at any time
or from time to time after the date on which this Warrant is issued, the
Company issues or sells any Options or Convertible Securities, then in each
case the Company shall be deemed to have issued at the time of the issuance of
such Options or Convertible Securities the maximum number of Additional Shares
of Common Stock (as set forth in the instruments relating thereto, giving
effect to any provision contained therein for a subsequent upward adjustment of
such number) issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of consideration, if any, received by the Company for the issuance of
such Options or Convertible Securities plus, in the case of such Options, the
minimum amounts of consideration, if any (as set forth in the instruments
relating thereto, giving effect to any provision contained therein for a
subsequent downward adjustment of such consideration), payable to the Company
upon the exercise of such Options and, in the case of Convertible Securities,
the minimum amounts of consideration, if any, payable to the Company (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities). No further adjustment of the Purchase Price, adjusted
upon the issuance of such Options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such Options or the conversion of any such Convertible
Securities. If any such Options or the conversion privilege represented by any
such Convertible Securities shall expire without having been exercised, the
Purchase Price adjusted upon the issuance of such Options or Convertible
Securities shall be readjusted to the Purchase Price which would have been in
effect had an adjustment been made on the basis that the only Additional Shares
of Common Stock so issued were the Additional Shares of Common Stock, if any,
actually issued or sold for the consideration received by the Company
-5-
<PAGE> 32
for the granting of all such Options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
12. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 12,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
13. Certificate of Adjustment. Whenever the Purchase Price is adjusted, as
herein provided, the Company shall promptly deliver to the Holder a certificate
of a firm of independent public accountants setting forth the Purchase Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
14. Notices of Record Date, Etc. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the
Company, or sale or conveyance of all or substantially all of its assets,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 10 days
prior to the date specified in such notice on which any such action is to be
taken.
15. Amendment. The terms of this Warrant may be amended, modified or
waived only with the written consent of the Company and the Holder. No such
amendment, modification or waiver shall be effective as to this Warrant unless
the terms of such
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<PAGE> 33
amendment, modification or waiver shall apply with the same force and effect to
all of the other Warrants then outstanding.
16. Warrant Register; Transfers, Etc.
A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. Subject to compliance with applicable federal and state securities
laws, this Warrant may be transferred by the Holder with respect to any or all
of the shares purchasable hereunder, provided, however, that the transferee
receive a Warrant to purchase no less than 50,000 shares of Common Stock. Upon
surrender of this Warrant to the Company, together with the assignment hereof
properly endorsed, for transfer of this Warrant as an entirety by the Holder,
the Company shall issue a new warrant of the same denomination to the assignee.
Upon surrender of this Warrant to the Company, together with the assignment
hereof properly endorsed, by the Holder for transfer with respect to a portion
of the shares of Common Stock purchasable hereunder, the Company shall issue a
new warrant to the assignee, in such denomination as shall be requested by the
Holder hereof, and shall issue to such Holder a new warrant covering the number
of shares in respect of which this Warrant shall not have been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or destroyed,
the Company shall issue a new warrant of like tenor and denomination and
deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company.
17. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
18. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the
Commonwealth of Massachusetts.
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<PAGE> 34
19. Successors and Assigns. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
20. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in the Commonwealth of Massachusetts, then
such action may be taken or right may be exercised on the next succeeding day
which is not a Saturday or Sunday or such a legal holiday.
Date: December __, 1998
UTILICOM NETWORKS, INC.
(Corporate Seal) By:
-------------------------------------
Attest: Title:
----------------------------------
- ----------------------------
Subscription
To: Date:
---------------------- --------------
The undersigned hereby subscribes for ________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
-------------------------------
Signature
-------------------------------
Name for Registration
-------------------------------
Mailing Address
Net Issue Election Notice
To: Date:
---------------------- --------------
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<PAGE> 35
The undersigned hereby elects under Section 4 to surrender the right to
purchase ______ shares of Common Stock pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
--------------------------------
Signature
--------------------------------
Name for Registration
--------------------------------
Mailing Address
Assignment
For value received ______________________ hereby sells, assigns and
transfers unto _________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address of Assignee
________________________________________________________________________________
the within Warrant, and does hereby irrevocably constitute and appoint
______________________ its attorney to transfer the within Warrant on the books
of the within named Company with full power of substitution on the premises.
Dated: __________________
__________________
In the Presence of:
_________________________
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<PAGE> 1
EXHIBIT 10.23
EXECUTION COPY
This instrument prepared by:
Charles E. Hord, III, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
AMENDED AND RESTATED LEASE
---------------------------------------------------
between
STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity
but solely as trustee,
as Lessor
and
WILLIAMS COMMUNICATIONS, INC.
as Lessee
Dated: As of September 2, 1998
THIS AMENDED AND RESTATED LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS
NUMBERED CONSECUTIVELY FROM l TO 4. TO THE EXTENT, IF ANY, THAT THIS AMENDED AND
RESTATED LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY
INTEREST IN THIS AMENDED AND RESTATED LEASE MAY BE CREATED THROUGH THE TRANSFER
OR POSSESSION OF ANY COUNTERPART OF THIS AMENDED AND RESTATED LEASE OTHER THAN
COUNTERPART NO. 1.
This is Counterpart No.
-----
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Lease)
<TABLE>
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Page
<S> <C>
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.....................................................................1
Section 1.01 Definitions ...............................................................................1
Section 1.02 Computation of Time Periods................................................................1
Section 1.03 Accounting Terms...........................................................................1
Section 1.04 Use of Certain Terms.......................................................................1
Section 1.05 Headings and References....................................................................2
ARTICLE II THE PROPERTY..........................................................................................2
Section 2.01 Lease of the Property......................................................................2
Section 2.02 Use of Property............................................................................3
Section 2.03 Quiet Enjoyment............................................................................4
Section 2.04 Lease Schedules............................................................................5
ARTICLE III TERM.................................................................................................5
Section 3.01 Base Term..................................................................................5
Section 3.02 Extended Term..............................................................................5
Section 3.03 Lessee's Options Upon Expiration...........................................................7
Section 3.04 Property Sold..............................................................................8
Section 3.05 Non-Terminability..........................................................................8
ARTICLE IV RENT..................................................................................................9
Section 4.01 Fixed Rent.................................................................................9
Section 4.02 Additional Rent...........................................................................10
Section 4.03 Default Rate..............................................................................10
Section 4.04 Rent Payments.............................................................................10
Section 4.05 Other Payments............................................................................10
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE V SALES AND OTHER DISPOSITIONS OF PROPERTY..............................................................11
Section 5.01 Optional Purchase by Lessee of All Property...............................................11
Section 5.02 Optional Purchase by Lessee of Items of Property..........................................11
Section 5.03 Mandatory Purchase by the Lessee of all Property..........................................12
Section 5.04 Purchase Procedures.......................................................................12
Section 5.05 Exchanges and Substitutions of Items of Property..........................................14
Section 5.06 Alterations; Removal......................................................................16
Section 5.07 Subletting................................................................................17
Section 5.08 Redeployment of the Property..............................................................18
Section 5.09 Effect of Disposition.....................................................................24
ARTICLE VI CERTAIN COVENANTS OF THE LESSEE......................................................................24
Section 6.01 Taxes and Assessments.....................................................................24
Section 6.02 Compliance with Laws......................................................................26
Section 6.03 Certain Agreements........................................................................26
Section 6.04 Liens.....................................................................................26
Section 6.05 Insurance.................................................................................27
Section 6.06 Maintenance and Repair....................................................................30
Section 6.07 Inspection Rights.........................................................................32
Section 6.08 Assignments, Etc..........................................................................32
Section 6.09 Location..................................................................................32
ARTICLE VII CONDEMNATION AND CASUALTY...........................................................................33
Section 7.01 Condemnation and Casualty.................................................................33
Section 7.02 Condemnation or Casualty with Termination.................................................34
Section 7.03 Condemnation or Casualty Without Termination..............................................34
Section 7.04 Temporary Condemnation of Lease Termination...............................................36
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE VIII ENVIRONMENTAL MATTERS..............................................................................36
Section 8.01 Environmental Event.......................................................................36
Section 8.02 Environmental Trigger Termination.........................................................36
Section 8.03 Environmental Remediation.................................................................37
Section 8.04 Environmental Compliance..................................................................37
ARTICLE IX REMEDIES.............................................................................................37
Section 9.01 General Remedies..........................................................................37
Section 9.02 Default Remedies..........................................................................38
Section 9.03 Lessee Default Repurchase Option..........................................................40
Section 9.04 Payment on Default........................................................................40
Section 9.05 Additional Rights.........................................................................41
ARTICLE X SURRENDER.............................................................................................42
Section 10.01 Return of Property.......................................................................42
Section 10.02 No Liens.................................................................................43
Section 10.03 Environmental Compliance.................................................................43
Section 10.04 Removal of Other Property................................................................43
Section 10.05 Return Conditions........................................................................44
Section 10.06 Survival.................................................................................49
ARTICLE XI SECURITY.............................................................................................49
Section 11.01 Characterization.........................................................................49
Section 11.02 Mortgage.................................................................................50
Section 11.03 Security Agreement.......................................................................53
ARTICLE XII MISCELLANEOUS.......................................................................................54
Section 12.01 Notices, Demands and Other Instruments...................................................54
Section 12.02 No Default Certificate...................................................................54
Section 12.03 Severability.............................................................................54
</TABLE>
iii
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<TABLE>
<S> <C>
Section 12.04 Binding Effect...........................................................................54
Section 12.05 Governing Law............................................................................55
Section 12.06 Counterparts.............................................................................55
Section 12.07 No Recourse..............................................................................55
Section 12.08 Lessor's Right to Cure Lessee's Default..................................................55
Section 12.09 Lessee's Right to Contest Property Taxes.................................................56
Section 12.10 Limitations on Amounts Payable...........................................................56
Section 12.11 Payments to the Agent....................................................................56
Section 12.12 Remaining Moneys.........................................................................56
Section 12.13 Waiver of Trial by Jury..................................................................57
Section 12.14 Exculpation of Lessor....................................................................57
Section 12.15 Prior Lease..............................................................................57
Schedule 1 - Fixed Rent and Additional Rent
Schedule 2.02(b) - Supplemental Use Restrictions
Schedule 5 - Form of IRU Agreement
Schedule 6.05(i) - All-Risk Property Insurance Exclusions
Schedule 6.05(ii) - General Liability Insurance Exclusions
Schedule 11.02(b) - Supplemental Mortgage Provisions
Schedule 11.03(c) - Supplemental Security Provisions
Schedule 12.15 - Acquisition Cost, Original Capitalized Cost and
Adjusted Capitalized Cost of Certain Property
Subject to Prior Lease
Exhibit A - Certificate of Acceptance
Exhibit B - Testing Procedures
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED LEASE dated as of September 2, 1998 (this
"Lease") between STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual capacity but solely as trustee under the
Declaration, having an address at 225 Asylum Street, Goodwin Square, Hartford,
Connecticut 06103, Attention: Corporate/Muni Administration (the "Lessor") and
WILLIAMS COMMUNICATIONS, INC., a Delaware corporation having an address at One
Williams Center, Tulsa, Oklahoma 74172 (the "Lessee").
PRELIMINARY STATEMENT
The Lessee and the Lessor desire to enter into this Lease for
certain Network Assets (as defined below) (i) to amend and restate, as set forth
herein, the Lease dated as of May 6, 1998 between the Lessor and the Lessee, as
amended, by the First Amendment (as amended, the "Prior Lease") and (ii) in
connection with the transactions referred to in the Amended and Restated
Participation Agreement dated as of September 2, 1998 by and among the Lessee,
the Lessor, as Trustee, the Persons named therein as Note Holders, Certificate
Holders and APA Purchasers, State Street Bank and Trust Company, as the
Collateral Agent, and Citibank, N.A., as the Agent, (as it may be amended,
modified, restated or supplemented from time to time in accordance with the
terms thereof, the "Participation Agreement").
The parties, therefore, hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions. As used in this Agreement, terms
defined in the preceding paragraphs or in other sections of this Lease shall
have the meanings specified therein, the terms defined in Appendix A to the
Participation Agreement, and not otherwise defined herein, shall have the
meanings set forth therein.
Section 1.02 Computation of Time Periods. In this Lease in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" means
"to but excluding."
Section 1.03 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP applied
consistently.
Section 1.04 Use of Certain Terms. Unless the context of this
Lease requires otherwise, the plural includes
<PAGE> 7
the singular, the singular includes the plural, the part includes the whole, and
"including" has the inclusive meaning of "including without limitation." The
words "hereof," "herein," "hereby," "hereunder," and other similar terms of this
Lease refer to this Lease as a whole and not exclusively to any particular
provision of this Lease. All pronouns and any variations thereof shall be deemed
to refer to masculine, feminine, or neuter, singular or plural, as the identity
of the person or persons may require.
Section 1.05 Headings and References. Section and other
headings are for reference only, and shall not affect the interpretation or
meaning of any provision of this Lease. Unless otherwise provided, references to
Articles, Sections, Schedules, and Exhibits shall be deemed references to
Articles, Sections, Schedules, and Exhibits of this Lease. References to this
Lease (and to any Articles, Sections, Schedules and Exhibits to this Lease)
include this Lease (and any Articles, Sections, Schedules and Exhibits to this
Lease) as the same may be modified, amended, restated or supplemented from time
to time pursuant to the provisions hereof. A reference to any law shall mean
that law as it may be amended, modified or supplemented from time to time, and
any successor law and to any applicable rules, regulations or orders as in
effect from time to time. A reference to a Person includes the successors and
assigns of such Person, except to the extent that this Lease, any other
Operative Document or any Securitization Document may restrict assignment or
rights of assignees. A reference in this Lease to any other Operative Document
or Securitization Document shall be deemed a reference to that Operative
Document or Securitization Document as it may be amended, modified or
supplemented from time to time.
ARTICLE II
THE PROPERTY
Section 2.01 Lease of the Property. (a) Subject to the terms
and conditions in this Lease, the Lessor hereby agrees to lease to the Lessee
and the Lessee hereby agrees to lease from the Lessor each Item of Property
listed on Schedule 1 of each Certificate of Acceptance, effective on the
Acceptance Date with respect to such Item of Property. No less often than once
per calendar quarter (ending March, June, September and December of each year),
the Lessee and the Lessor shall execute and deliver a Certificate of Acceptance
with respect to any Item of Property (i) for which a Certificate of Acceptance
has not previously been executed and delivered and (ii) which became subject to
this Lease in the previous three months.
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(b) Each Item of Property is leased to the Lessee subject to:
(i) all applicable Legal Requirements;
(ii) all applicable Insurance Requirements;
(iii) all terms, covenants and provisions in any applicable
Real Property Instrument;
(iv) all Trust Encumbrances (including the Security
Agreement);
(v) all terms, covenants and provisions in any contract,
lease (including any ground lease, sublease or overlease), agreement,
permit, right-of-way, license, order or other instrument (including any
IRU) governing or affecting any Item of Property; and
(vi) the terms, covenants and provisions of this Lease, the
other Operative Documents and the Securitization Documents.
(c) Each Item of Property is leased AS IS, WHERE IS, WITH ALL
FAULTS.
(d) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING
A PORTION THEREOF, OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY,
FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF OR
AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE LESSOR'S
TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING AGREED THAT ALL RISKS
INCIDENT THERETO ARE TO BE BORNE BY THE LESSEE. IN THE EVENT OF ANY DEFECT OR
DEFICIENCY OF ANY NATURE IN PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A
PORTION THEREOF, OR LESSOR'S TITLE TO ANY OF THE SAME, WHETHER PATENT OR LATENT,
THE LESSOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE
PROVISIONS OF THIS SECTION 2.01(d) HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A
COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES AND REPRESENTATIONS,
EXPRESS OR IMPLIED, BY THE LESSOR WITH RESPECT TO PROPERTY (INCLUDING THE
IMPROVEMENTS) OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF,
WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW, NOW OR HEREAFTER IN
EFFECT.
Section 2.02 Use of Property. (a) The Lessee shall use the
Property solely as telecommunications facilities and in a manner that (i) is in
compliance with each of the matters referred to in Section 2.01(b)(i) through
(vi) inclusive and (ii) will not subject the Lessor to any Trust Liability or
regulation by any Governmental Authority (other than federal and state banking
regulatory authorities in those jurisdictions in which the Lessor is otherwise
conducting
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operations unrelated to the ownership and leasing of the Property).
(b) The Lessee, shall, with respect to any Property that is
Regulated Property in any state or other jurisdiction, comply with the
provisions in Schedule 2.02(b) hereof, as such Schedule may be amended, modified
or supplemented from time to time in accordance with this Lease and the other
Operative Documents.
Section 2.03 Quiet Enjoyment. (a) During the Term, the Lessor
covenants that, unless a Default, an Event of Default or an Environmental
Trigger has occurred and is continuing, it will not, and will not permit any
Person (other than the Lessee) claiming by or under the Lessor to, (i) grant,
create or suffer to exist any Lien upon the Property (or any part thereof or
interest therein) other than the Permitted Encumbrances (excluding therefrom any
Liens created by the Lessor) or (ii) interfere with the peaceful and quiet
possession and enjoyment of the Property by the Lessee or the Lessee's permitted
assigns; provided, however, that nothing herein shall affect the exercise by any
of the Lessor Group of the inspection rights set forth in Section 6.07.
(b) During the Term, unless an Event of Default has occurred
and is continuing, the Lessor will not, and will not permit any Person claiming
by, through or under the Lessor to, assign, transfer, lease or convey the
Property or this Lease, or any part thereof or interest therein other than (i)
to the Lessee or by the Lessee to any other Person pursuant to the Services
Agreement, this Lease, any of the other Operative Documents or the
Securitization Documents and (ii) to the Collateral Agent or by the Collateral
Agent to any other Person pursuant to the Security Agreement, the Interparty
Agreement, any of the other Operative Documents or any of the Securitization
Documents; provided that any such assignment, transfer or conveyance to or by
the Collateral Agent (prior to the Expiration Date and so long as no Event of
Default has occurred and is continuing) is (x) expressly subordinate to the
rights of the Lessee under this Lease and (y) subject to the rights of the
Lessee to purchase, sell, lease, exchange, redeploy or otherwise deal with the
Property pursuant to the terms of this Lease and the other Operative Documents.
(c) The Lessor, at the Lessee's sole cost and expense, shall
cooperate or assist with the Lessee's efforts to obtain all services, Permits
and contracts necessary and useful for the acquisition, construction, operation
and maintenance of the Property for the intended purposes thereof, and the
Lessor may, and to the extent required in Section 6.04(c) shall, execute such
documents or papers as may be reasonably necessary for such purposes. The Lessee
covenants that it shall at its own cost and expense on behalf of and in the name
of the Lessor, apply for, obtain and maintain all
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Permits and Consents required in order to permit the lawful ownership of the
Property by the Lessor during the Term.
(d) Any failure by the Lessor or such other Person to comply
with the foregoing provisions of this Section 2.03 or any other provisions of
this Lease shall not give the Lessee any right to cancel or terminate this
Lease, or to abate, reduce or make deduction from or offset against any Fixed
Rent, Additional Rent or other sum payable under this Lease, or to fail to
perform or observe any other covenant, agreement or obligation hereunder.
Section 2.04 Lease Schedules. The Lessee shall amend and
supplement the schedules of this Lease (i) as may be reasonably requested by the
Lessor from time to time and (ii) as may be necessary or appropriate from time
to time to assure the continued accuracy in all material respects of any
representation or warranty made by the Lessee in this Lease, any Certificate of
Acceptance or any other Operative Document (whether or not any change has been
requested by the Lessor), including such changes as may be required in
connection with any acquisition, sale, exchange, change of location,
re-deployment, grant of an Approved IRU, alteration, substitution, purchase or
other disposition of any Item of Property or any change in any Law or any
ruling, directive or policy of any Governmental Authority (whether or not having
the force of Law) affecting any Item of Property in any way, including any
regulation of the operation or use of any such Item of Property, or any sale,
lease, exchange or other disposition of any such Item of Property, or the
existence, validity, enforceability, perfection or priority of any security
interest in, mortgage of, or Lien on any such Item of Property, or the taxation
or basis of taxation of any such Item of Property.
ARTICLE III
TERM
Section 3.01 Base Term. Each Item of Property is leased for a
term commencing on the Acceptance Date for such Item of Property and ending on
the Base Term Expiration Date (or any earlier Expiration Date), subject to the
provisions of Sections 3.02 and 3.04.
Section 3.02 Extended Term. (a) So long as no Default, Event
of Default or Environmental Trigger exists, the Lessee may request (in its sole
discretion) two successive 364 day extensions of the term of this Lease (each a
"Renewal Term"), by giving written notice to the Agent (i) at least twelve (12)
months prior to the Base Term Expiration Date, for the first such Renewal Term,
and (ii) on or prior to the Base Term Expiration Date, for the second such
Renewal Term.
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(b) Such request shall be accompanied by an Officer's
Certificate of the Lessee stating that, as of the date of such request, no
Default or Event of Default or Environmental Trigger has occurred and is
continuing or, if a Default or an Event of Default or Environmental Trigger
exists, setting forth the details thereof and the action, if any, the Lessee has
taken, is taking or proposes to take with respect thereto. Promptly upon receipt
of such request and the accompanying Officer's Certificate, the Agent shall
forward copies thereof to the Trustee and the Note and Certificate Holders. If,
by the date occurring thirty (30) days after the Lessee's delivery of the
extension request (the "Response Date"), Note Holders holding not less than 66
2/3% of the outstanding principal amount of the Notes and Certificate Holders
holding not less than 66 2/3% of the outstanding stated amount of the
Certificates consent to such extension, such extension shall become effective
under the Operative Documents as of the Base Term Expiration Date as to each
Extending Holder (as defined below) subject to the limitation set forth below;
provided, that, as of the Base Term Expiration Date (i) the representations and
warranties of the Lessee in the Operative Documents shall be true and correct in
all material respects, (ii) no Default or Event of Default or Environmental
Trigger shall exist and (iii) if a Default or an Event of Default or
Environmental Trigger existed at the time the request for the applicable
extension was made, then an Officer's Certificate of the Lessee shall be
delivered to the Agent certifying that such Default or Event of Default or
Environmental Trigger has been cured in accordance with the terms of the
Operative Documents. The Agent shall give prompt written notice of the
effectiveness of any such extensions to the Lessee, the Trustee, and the Note
and Certificate Holders. Notwithstanding anything to the contrary contained
herein, such extension shall be effective only as to each Note and Certificate
Holder (each, an "Extending Holder") which consented to such extension, but
shall not be effective as to any other Note or Certificate Holders (each, a
"Non-Extending Holder"). With respect to any Non-Extending Holder, the Base Term
Expiration Date shall continue to be the Expiration Date. If the Lessee fails to
obtain the requisite consents specified above by the Response Date, no extension
shall be granted. Each Holder shall be entitled to grant or withhold its consent
in its sole discretion to any extension of the Base Term Expiration Date
requested by the Lessee. Any Holder that fails to deliver its consent by the
Response Date shall be deemed to have withheld its consent. In the event that
the Lessee obtains the necessary consents specified above by the Response Date,
but there exists one or more Non-Extending Holders with respect to such
extension, the Agent will use reasonable efforts to assist the Lessee in
locating one or more Persons (whether such Persons are then current Holders or
otherwise) to replace the Non-Extending Holders (such Person or Persons being
"Replacement Holders"). If within thirty (30) days following the Response Date,
Replacement Holders have agreed to purchase
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in full the Non-Extending Holders' Notes and/or Certificates (as the case may
be), then the extension shall become effective as to the Replacement Holders. If
Replacement Holders have not so agreed by the end of such 30-day period, then no
extension shall be granted and Lessee shall elect the option under Section
3.03(a)(i) or (ii) within ten (10) days thereafter.
(c) The Lessor and the Lessee shall determine the Applicable
Rate, Fixed Rent and other terms and conditions (including the amount of the
remarketing fee in Section 3.02(c)) for the Extended Term, and the Lessee shall
take such actions and enter into all amendments and supplements to the Operative
Documents and such other agreements or documents as the Lessor in its sole
discretion determines to be necessary and appropriate in connection therewith
including, delivery to Agent of an Appraisal of the Property (satisfactory in
form and substance to the Agent in its sole discretion).
(d) If the Lease is extended for the Extended Term, the Lessee
shall pay the Agent a remarketing fee, the amount of which shall be determined
one month prior to the commencement of the Extended Term.
(e) If the Lessee does not accept the terms of the Extended
Term (including any proposed changes to the Operative Documents or the terms of
any additional agreements proposed by the Lessor), the Lessee may reject the
Extended Term and the Lessee shall be obligated to purchase the Property in
accordance with Section 3.03(a)(i).
Section 3.03 Lessee's Options Upon Expiration. (a) The Lessee
shall elect, by written notice given at least twelve (12) months prior to the
Expiration Date, either to:
(i) deliver an Offer to Purchase the Property in its
entirety and purchase the Property on the Expiration Date upon payment
of an amount equal to the Termination Value, in which case the transfer
of the Property shall be governed by the terms of Section 5.04; or
(ii) so long as no Default, Event of Default or
Environmental Trigger has occurred and is continuing, and subject to
the satisfaction of the conditions set forth in Section 3.03(b) and
Article X, terminate this Lease, release all of its interest in the
Property as of the Expiration Date and pay to the Agent, on behalf of
the Lessor on the Expiration Date, in addition to any Fixed Rent,
Additional Rent and any other amounts then due and payable to the
Lessor hereunder, an amount equal to the Residual Value Amount; or
(iii) subject to the conditions set forth in Section 3.02,
extend this Lease for up to two successive Renewal Terms.
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If the Lessee is unable to satisfy one or more of the conditions set forth
above, or fails to timely make an election as provided above, the Lessee shall
be deemed to have elected to proceed under Section 3.03(a)(i) hereof.
(b) Upon the Lessee's election to terminate this Lease
pursuant to and in compliance with Section 3.03(a)(ii), the Lessee shall use
reasonable efforts during the twelve-month period prior to the Expiration Date
("Remarketing Period") to obtain bids from unrelated third parties for the
Property. All bids received by the Lessee shall immediately be copied to the
Lessor and the Agent in writing, setting forth the amount of such bid and the
name and address of the person submitting such bid. The Lessor, the Agent, the
Certificate Holders and the B-Note Holders shall have the right, but not the
obligation, to seek bids for the Property during the Remarketing Period or at
any time thereafter. On the Expiration Date or at any time thereafter, the
Property shall be sold pursuant to the provisions of the Declaration (any such
sale, a "Qualified Sale"). The Lessee shall be entitled to receive from the
Lessor reasonable compensation for services rendered pursuant to this Section
3.03(b), in such amounts as may be agreed upon by the Lessor and the Lessee
prior to the commencement of the Remarketing Period.
Section 3.04 Property Sold. (a) The term of the Lease for any
Item of Property shall end on the date such Item of Property is sold, exchanged
or otherwise disposed of pursuant to Sections 5.02, 5.05 and 5.08(c), but there
shall be no abatement, reduction, adjustment or other change in Rent payable
pursuant to this Lease as a result of such sale, exchange or other disposal,
except as otherwise expressly provided in the Lease; provided, that with respect
to exchanges of Property made pursuant to Section 5.05, the term of the Lease
with respect to any Replacement Property (as defined below) shall commence on
the date the Item of Property which it replaces is exchanged.
(b) The term of this Lease for all of the Property shall end
on the date of any sale of all of the Property in accordance with, and subject
to the limitations set forth in, Section 5.04(d).
Section 3.05 Non-Terminability. (a) This Lease is a triple net
lease and, except as otherwise expressly provided in this Lease, any present or
future Law to the contrary notwithstanding, shall not terminate, nor shall the
Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense
or deduction with respect to any Fixed Rent, Additional Rent or other sum
payable hereunder. Except as otherwise expressly provided in this Lease and
except to the extent due to the gross negligence or willful misconduct of the
Lessor, the obligations of the Lessee shall not be affected by reason of: (i)
any damage to or destruction of the Property or any part thereof by any cause
whatsoever
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(including by fire, Casualty or act of God or enemy or any other force majeure
event); (ii) any Condemnation, including a temporary Condemnation of the
Property or any part thereof; (iii) any prohibition, limitation, restriction or
prevention of the Lessee's use, occupancy or enjoyment of the Property or any
part thereof by any Person; (iv) any matter affecting title to the Property or
any part thereof; (v) any eviction of the Lessee from, or loss of possession by
the Lessee of, the Property or any part thereof, by reason of title paramount or
otherwise; (vi) any default by the Lessor hereunder or under any other Operative
Document or Securitization Document; (vii) the invalidity or unenforceability of
any provision hereof or in the other Operative Documents or Securitization
Documents or the impossibility or illegality of performance by the Lessor or the
Lessee or both; (viii) any action of any Federal, state or local governmental
authority; or (ix) any other cause or occurrence whatsoever, whether similar or
dissimilar to the foregoing. The parties intend that the obligations of the
Lessee hereunder shall continue unaffected unless such obligations shall have
been modified or terminated pursuant to an express provision of this Lease.
(b) The Lessee shall remain obligated under this Lease in
accordance with its terms and shall not take any action, unless otherwise
permitted by this Lease, to terminate, rescind or avoid this Lease,
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting the Lessor or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator or by
any court. Except as expressly permitted in this Lease, the Lessee waives all
rights to terminate or surrender this Lease, or to any abatement or deferment of
Fixed Rent, Additional Rent or other sums payable hereunder or under the other
Operative Documents or the Securitization Documents. The Lessee shall remain
obligated under this Lease in accordance with its terms, and the Lessee hereby
waives any and all rights now or hereafter conferred by Law or otherwise to
modify or to avoid strict compliance with its obligations under this Lease. All
payments made to or for the benefit of the Lessor hereunder as required hereby
shall be final, and the Lessee shall not seek to recover any such payment or any
part thereof for any reason whatsoever, absent manifest error.
ARTICLE IV
RENT
Section 4.01 Fixed Rent. (a) During the Base Term and any
Renewal Term, the Lessee shall pay to the Agent, on behalf of the Lessor, Fixed
Rent on each Payment Date in the amounts determined in accordance with Schedule
1 hereto. The
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Lessee shall have no obligation to pay Fixed Rent during the Interim Term.
Section 4.02 Additional Rent. During the Term, the Lessee
shall pay to the Agent, on behalf of the Lessor, Additional Rent in the amounts
determined in accordance with (and at the times required under) the Operative
Documents and the Securitization Documents. The Lessor shall give the Lessee
notice of any Additional Rent due hereunder promptly after it has knowledge of
such Additional Rent, and shall use reasonable efforts to notify the Lessee in
advance of the due date and amount of such Additional Rent; provided that
failure to give such prompt notice shall not relieve the Lessee of its
obligation to pay such Additional Rent, subject to, as applicable, the Lessee's
rights, if any, under Section 6.01(b). Additional Rent shall be payable as
provided for in Schedule 1 hereto or as otherwise provided in this Lease, the
other Operative Documents and the Securitization Documents.
Section 4.03 Default Rate. During any period from and after
the date of the occurrence of an Event of Default until the earlier of (i) the
date such Event of Default has been waived or cured and (ii) the date all
amounts payable by the Lessee hereunder have been paid in full, the Lessee shall
pay to the Lessor, on demand, interest at the Default Rate on all amounts
payable by it hereunder.
Section 4.04 Rent Payments. All amounts payable by the Lessee
hereunder shall be paid in lawful money of the United States of America and in
immediately available funds by 11:00 a.m. (New York City time) on the applicable
Payment Date or on the date when due, unless any such due date is not a Business
Day, in which case payment shall be due and payable on the next succeeding
Business Day, at the Agent's address as set forth in Schedule I to the
Participation Agreement, or at such other address or to such other person in the
United States of America or in such other manner as the Lessor from time to time
may designate to the Lessee by written instructions.
Section 4.05 Other Payments. Except as otherwise provided in
this Lease or the other Operative Documents or the Securitization Documents, the
Lessee shall perform all of its obligations under this Lease at its sole cost
and expense and shall pay, when due and without notice or demand, all amounts
due hereunder or under the other Operative Documents (including amounts set
forth in Section 8.13 of the Participation Agreement) or the Securitization
Documents.
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ARTICLE V
SALES AND OTHER DISPOSITIONS OF PROPERTY
Section 5.01 Optional Purchase by Lessee of All Property. At
any time during the Term the Lessee may deliver to the Lessor and the Agent an
Offer to Purchase the Property in its entirety, at least 20 days in advance of
the Closing Date (as defined below), for an amount equal to the Termination
Value for the Property, upon and subject to the applicable terms of this Lease.
The Termination Value received by the Agent, on behalf of the Lessor, in
accordance with the provisions of this Section 5.01 and Section 5.04 shall be
applied to the payment of the Instruments in accordance with Sections 5.02(a)
and 6.01 of the Declaration and the other Operative Documents.
Section 5.02 Optional Purchase by Lessee of Items of Property.
(a) At any time during the Term, Lessee may deliver to the Lessor and the Agent,
an Offer to Purchase any Item of Property, at least 10 days in advance of the
Closing Date and at least 12 months prior to the Expiration Date (unless the
Lessee has given the notice referred to in Section 3.03(a)(i)), for an amount
equal to the Termination Value for the Item of Property identified in the Offer
to Purchase, upon and subject to the applicable terms of this Lease.
(b) The Lessee's right to deliver an Offer to Purchase
pursuant to Section 5.02(a) shall be subject to the satisfaction of the
following conditions (as determined by the Agent in its sole reasonable
discretion):
(i) No Default or Event of Default or Environmental
Trigger shall have occurred and be continuing.
(ii) The Item of Property identified in the Offer to
Purchase shall have been separately valued in an Appraisal and shall
have a minimum aggregate Termination Value of $5 million or any
integral multiple of $1 million in excess thereof.
(iii) After giving effect to the sale of the Item of
Property identified in the Offer to Purchase and any prior sales of
Property pursuant to this Section, any exchanges or substitutions of
Property pursuant to Section 5.05, any IRUs granted pursuant to Section
5.07 and any redeployment of Property pursuant to Section 5.08, on a
pro forma basis, the Property held by the Lessor shall have an
Appraised Value at least equal to the Appraised Value of the Property
held by the Lessor on the Completion Date.
(iv) The Agent and the Lessor shall have received a
certificate of a Responsible Officer of the Lessee,
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certifying as to the matters set forth in Section 5.02(b)(i), (ii) and
(iii).
(v) The Lessee shall have paid, or made arrangements
(satisfactory to the Lessor and the Agent, in their sole reasonable
discretion) to pay, any taxes, costs and expenses (including legal,
accounting and other professional fees and expenses) reasonably
incurred by the Lessor, the Agent and the Collateral Agent in
connection with such sale.
(c) The Termination Value received by the Agent on behalf of
the Lessor, in accordance with the provisions of this Section 5.02 and Section
5.04 shall be applied to the payment of the Instruments in accordance with
Section 5.10 of the Participation Agreement, Section 5.02(b) of the Declaration
and the other Operative Documents.
Section 5.03 Mandatory Purchase by the Lessee of all Property.
If any Termination Notice is issued pursuant to Sections 7.02 or 8.02 of this
Lease, the Lessee shall deliver (and shall be deemed to have delivered) to the
Lessor an Offer to Purchase the Property in its entirety for an amount equal to
the Termination Value for the Property, upon and subject to the applicable terms
of this Lease.
Section 5.04 Purchase Procedures. (a) The Lessee may assign to
any Person reasonably satisfactory to the Agent and the Lessor the right to
purchase property pursuant to Section 5.02. Notwithstanding any such assignment,
the Lessee shall remain liable to the Lessor for the prompt payment and
performance, as and when due, of all amounts payable (including the Termination
Value) and all obligations of the purchaser under this Lease, the other
Operative Documents and the Securitization Documents. No consent to any such
assignment, acceptance of payment from or performance by any assignee or other
action by or on behalf of the Lessor or the Agent shall release the Lessee of
any obligations under this Lease, the other Operative Documents or the
Securitization Documents, except upon full payment and performance as and when
due.
(b) Intentionally omitted.
(c) The Lessor shall be deemed to have accepted, on the date
of receipt, any Offer to Purchase the Property which materially satisfies the
conditions set forth in this Lease, including those set forth in Section 3.03
and this Article V, as applicable.
(d) The date of the closing of the Lessee's (or its
designee's) purchase of the Property or any Item of Property (the "Closing
Date") shall be (i) in the case of an Offer to Purchase made (or deemed made)
pursuant to Section 3.03(a)(i), the Expiration Date, or (ii) in the case of an
Offer to
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Purchase made (or deemed made) pursuant to Section 5.01 or 5.02, the next
scheduled Payment Date following the date of the Lessor's acceptance or deemed
acceptance of such Offer to Purchase, or (iii) in the case of an Offer to
Purchase made (or deemed made) pursuant to Section 5.03, the fifteenth day
following the date of Lessor's acceptance or deemed acceptance of such Offer to
Purchase (or if that day is not a Payment Date, the first scheduled Payment Date
following such fifteenth day), or (iv) if the Lessee shall pay the Termination
Value pursuant to Section 9.03 on the date of the Lessor's receipt of the
Termination Value.
(e) Intentionally omitted.
(f) On the Closing Date, the Lessee shall pay, or cause to be
paid, to the Agent (on behalf of the Lessor) the Termination Value, and the
Lessor shall simultaneously (i) deliver to the Lessee or its designee bills of
sale or other appropriate instruments of transfer reasonably necessary to assign
and convey to the Lessee or its designee the Property or Item of Property then
required to be assigned pursuant hereto without representation or warranty
(expressed or implied) of any kind except that the Property is free and clear of
Liens created by the Operative Documents and the Securitization Documents or
otherwise created by the Lessor (other than any Liens created by or through the
Lessee), and (ii) convey, or cause to be conveyed, to the Lessee or its designee
any Net Proceeds related to the Property and/or the right to receive the same.
Additionally, on the Closing Date, upon receipt of the Termination Value, the
Lessor and the Collateral Agent shall execute the releases and take the other
actions described in Section 8.21(b) of the Participation Agreement.
(g) Upon the completion of any purchase of the Property
pursuant to this Article V, but not prior thereto, this Lease shall terminate
except with respect to obligations and liabilities of the Lessee, actual or
contingent, which have arisen with respect to the Property or under the
Operative Documents or Securitization Documents on or prior to such date of
purchase, and except for indemnification and other obligations and liabilities
which by the terms of this Lease, the other Operative Documents or the
Securitization Documents survive termination of this Lease, the other Operative
Documents or the Securitization Documents.
(h) Notwithstanding any provisions of this Lease or the
Participation Agreement to the contrary, the Lessee shall not be required to
acquire title to the Property until such time that all necessary filings and
notifications under the HSR Act or any similar Law shall have been made
(including any filing or provision of required additional information or
documents) and the waiting period referred to in the HSR Act applicable to such
purchase shall have expired or been terminated (without any objection or
prohibition of such
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purchase). The Lessee hereby covenants to use its best efforts to secure the
prompt termination of such waiting period without objection or prohibition.
Notwithstanding the foregoing, if the Lessee is precluded from acquiring the
Property or any part thereof pursuant to the HSR Act or any similar Law, the
Lessee shall pay the Termination Value within the time and in the manner
described in this Article V as a consequence of the Lessee's exercise or deemed
exercise of its purchase option hereunder. However, if the Lessee pays the
Termination Value in compliance with the preceding sentence, then Lessee shall
be entitled to continue to lease the Property or any part thereof the Lessee is
precluded from acquiring for an additional rental payment of $1 per annum under
the terms and provisions of this Lease for an extended term expiring on the
earlier to occur of (i) one year from the date the Lessee delivers (or is deemed
to have delivered) the Offer to Purchase or (ii) the date that the Lessee is no
longer precluded from purchasing the Property pursuant to the HSR Act or any
similar Law. If Lessee (or its designee) does not purchase the Property prior to
the expiration of such extended term, then Lessor shall thereafter sell the
Property and distribute the proceeds from such sale in accordance with the
Interparty Agreement. If, prior to the voluntary exercise by the Lessee of the
purchase options hereunder, the Lessee is unable to obtain a ruling or an
unqualified legal opinion (in form and substance and from independent legal
counsel, in each case, reasonably satisfactory to the Agent) that a filing under
the HSR Act or any similar Law is not required in order to consummate such
purchase, then the Lessor shall execute such conditional sales contracts and
other documents necessary to permit the Lessee to complete such filing before
irrevocably exercising its purchase option. As a condition to executing such
conditional sales contracts and other documents, the Lessee shall deliver to the
Lessor an agreement obligating the Lessee to fully indemnify the Lessor from all
liabilities, damages, costs and expenses arising from the execution of such
documents and the completion of such filing.
Section 5.05 Exchanges and Substitutions of Items of Property.
At any time during the Term, Lessee may, upon not less than 30 days prior
written notice to the Agent and the Lessor, deliver to the Lessor replacement
Network Assets (the "Replacement Property") in exchange or substitution for any
Item of Property then held by the Lessor (the "Removed Property") subject to the
satisfaction of the following conditions (as determined by the Agent in its sole
reasonable discretion):
(i) No Default or Event of Default or Environmental
Trigger shall have occurred and be continuing.
(ii) The Removed Property shall have been separately valued
in an Appraisal.
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(iii) In the case of any Item of Property which has (a)
become obsolete, or (b) suffered a Casualty or Condemnation, or (c)
malfunctioned, the Replacement Property shall have a value, utility and
economic useful life at least equal to the original value, utility and
economic useful life of the Removed Property (as measured immediately
prior to such Item of Property becoming obsolete, suffering such
Casualty or Condemnation or malfunctioning).
(iv) Except for Replacement Property referred to in clause
(iii) above, the Replacement Property shall have a fair market value at
the time of the exchange or substitution at least equal to the
Termination Value for the Removed Property; provided, however, that
Replacement Property shall not consist of any Capacity Leases.
(v) After giving effect to the exchange or substitution
and any sales of Property pursuant to Section 5.02 and any prior
exchanges or substitutions of Property pursuant to Section 5.05, any
IRUs granted pursuant to Section 5.07 and any redeployment of Property
pursuant to Section 5.08, on a pro forma basis, the Property held by
the Lessor shall have an Appraised Value at least equal to the
Appraised Value of the Property held by the Lessor on the Completion
Date.
(vi) The Agent and the Lessor shall have received a
certificate of a Responsible Officer of the Lessee, certifying as to
the matters set forth in Section 5.05(i), (ii) and (iii).
(vii) The Lessee shall have paid, or made arrangements
(satisfactory to the Lessor and the Agent, in their sole reasonable
discretion) to pay, any taxes, costs and expenses (including legal,
accounting and other professional fees and expenses) reasonably
incurred by the Lessor, the Agent and the Collateral Agent in
connection with such redeployment.
(viii) On or prior to the date elected by the Lessee to
effect such substitution or exchange, a copy of a bill of sale or other
document transferring title in form and substance satisfactory to the
Agent and the Lessor, covering the replacement Item or Items of
Property, executed by the owner thereof in favor of the Lessor shall
have been duly authorized, executed and delivered and, if appropriate,
filed for recordation by the respective party or parties thereto and
shall be in full force and effect, and an executed counterpart of each
thereof shall be delivered to the Agent and the Lessor.
(ix) As soon as practicable, but no later than thirty (30)
days after the date elected by the Lessee to effect such substitution
or exchange, the following
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documents shall have been duly authorized, executed and delivered and,
if appropriate, filed for recordation by the respective party or
parties thereto and shall be in full force and effect, and an executed
counterpart of each thereof shall be delivered to the Agent and the
Lessor:
(1) a Certificate of Acceptance covering the
replacement Item or Items of Property, appropriately completed
and executed by the Lessee and Lessor;
(2) an Officer's Certificate from the Lessee
certifying that the replacement Item or Items of Property is
free and clear of all Liens other than Permitted Encumbrances;
(3) such mortgages, UCC financing statements and such
other filings covering the Item or Items of Property as are
deemed necessary or desirable by the Agent and Special
Counsel to establish and protect the security interests of
the Trustee, if any, the Agent and the Purchasers in respect
of the replacement Item or Items of Property; and
(4) such amendments and supplements of the Schedules
to this Lease covering the Item or Items of Property as are
deemed necessary or desirable by the Agent and Special
Counsel in respect of any Regulated Property or to establish
and protect the security interests of the Trustee, if any,
the Agent and the Purchasers in respect of the replacement
Item or Items of Property.
Section 5.06 Alterations; Removal. (a) At any time, so long as
no Default or Event of Default or Environmental Trigger shall have occurred and
be continuing, the Lessee may, at its sole cost and expense, make Alterations to
the Property or any part thereof; provided, however, that (i) the fair market
value of the Property shall not be lessened by such Alterations; (ii) such
Alterations shall not materially diminish the capacity, utility, efficiency, or
remaining useful life of the Property or any part thereof; and (iii) such work
shall be completed in a good and workmanlike manner free and clear of any Liens
for labor, services or materials (other than Permitted Encumbrances) and in
compliance with all applicable Legal Requirements and Insurance Requirements.
(b) Title to all Alterations shall vest in the Lessor (free
and clear of all Liens, except Permitted Encumbrances) subject to the right of
Lessee to remove such Alterations as provided hereunder. Upon any removal of the
Alterations permitted hereunder, the Lessor (at the sole cost and expense of the
Lessee) shall execute and deliver to the Lessee such instruments and releases as
are reasonably
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required to transfer the Alterations to the Lessee free and clear of Liens
created by the Operative Documents, the Securitization Documents or otherwise
created by the Lessor (other than any Liens created by or through the Lessee),
in each case, without representation or warranty (expressed or implied) of any
kind except that such Alterations are free and clear of any Lien created by the
Operative Documents, the Securitization Documents or otherwise created by the
Lessor (other than any Liens created by or through the Lessee).
(c) So long as no Default or Event of Default or Environmental
Trigger shall have occurred and be continuing, the Lessee shall be permitted at
any time during, or upon the expiration or termination of, the Term, and at its
sole cost and expense, to remove or demolish any Alterations in accordance with
prudent industry practices; provided, however, that, such removal shall not (i)
materially impair the intended use or materially reduce the fair market value of
the Property or any part thereof below its fair market value at the commencement
of the Term (less normal wear and tear); (ii) materially diminish the capacity,
efficiency, utility or remaining useful life of the Property or any part thereof
below the capacity, efficiency, utility or remaining useful life as of the
commencement of the Term; or (iii) cause a violation of any Legal Requirement or
Insurance Requirement or significantly increase any risk of liability under any
Environmental Law or any risk to human health or the environment. Any damage to
the Property or any part thereof caused by such removal shall promptly be
repaired by the Lessee and the Property (and each and every part thereof) shall
be restored to the condition (or the reasonable equivalent thereof) as it
existed immediately prior to the construction of such removed Alterations, at
the Lessee's sole cost and expense.
(d) In the event that the Lessee plans to incur expenses in
excess of $10 million for Alterations during any calendar year, then not less
than 30 days before the beginning of such calendar year, the Lessee shall
provide the Lessor and the Agent with a report of the Lessee's capital spending
plans for such calendar year for Alterations. Such report, if required, shall be
accompanied by a certification from the Lessee to the effect that all such
planned Alterations will comply with the standards set forth in Section 5.06(a).
Section 5.07 Subletting. (a) Except as provided in Section
5.07(b), the Lessee may not sublet the Property or any part thereof without the
prior written consent of the Lessor. Any sublease granted otherwise than as
expressly permitted by this Section 5.07 shall be null and void and of no force
or effect.
(b) The Lessor, at the request of the Lessee, may grant to any
Person an Approved IRU in respect of Cable Facilities and the related Cable,
Conduit and other Network
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Assets, as appropriate, provided that, after giving effect to such Approved IRU,
any prior Approved IRUs granted by the Lessee, and any sales, exchanges or
other dispositions of Network Assets pursuant to Sections 5.02, 5.05 or 5.08, at
least 10% (measured by Appraised Value) of the Network Assets constituting
Property are not subject to IRUs.
(c) An Approved IRU shall be treated hereunder, at the
Lessee's sole option, as (i) an optional purchase of an Item of Property subject
to the provisions of Section 5.02 or (ii) a redeployment of Property subject to
the provisions of Section 5.08(a)(ii).
(d) Except with respect to an Approved IRU, no IRU shall
modify or limit any right or power of the Lessor hereunder or affect or reduce
any obligation of the Lessee hereunder, and all such obligations of the Lessee
shall continue in full force and effect as obligations of a principal and not of
a guarantor or surety, as though no IRU had been granted.
(e) If the Lessee shall request, in connection with any
Approved IRU, that the Lessor execute an attornment and non-disturbance
agreement with respect to such Approved IRU, the Lessor shall consider each such
Approved IRU on a case-by-case basis and may consent to its execution and
delivery of an attornment and non-disturbance agreement.
Section 5.08 Redeployment of the Property. (a) At any time
during the Term, the Lessee may redeploy Network Assets, either by (i) removing
and relocating such Property from one location and/or use to another location
and/or use as provided in Section 5.08(b) or (ii) buying or arranging for the
sale of such Property for cash and for the reinvestment of the proceeds of such
sale in other Network Assets and/or Permissible Investments, as provided in
Section 5.08(c).
(b) The Lessee may, at its sole cost and expense, change the
location or use of any Item of Property at any time, subject to satisfaction of
the following conditions:
(i) No Default or Event of Default or Environmental
Trigger shall have occurred and be continuing.
(ii) The new use and/or location of the Item of Property
shall comply in all respects with Section 2.02.
(iii) The Lessee shall have given the Lessor and the Agent a
reasonably detailed written notice describing the Item of Property
affected and the new use and/or location of such Item of Property and
any other relevant information, (x) in the case of any Signal
Equipment, no more than three Business Days after such change in
location and/or use or (y) in the case of any other Item
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of Property not less than 30 days prior to such change in the location
and/or use of such Item of Property and neither the Lessor nor the
Agent shall have objected in writing to such change.
(iv) The new use and/or location shall not have a material
adverse effect on the value, capacity, efficiency, utility or remaining
useful life of either (1) the Item of Property affected or (2) the
Property, taken as a whole.
(v) The new use and/or location shall not adversely affect
in any way the ability to satisfy the Return Conditions.
(vi) The Lessee shall have taken (or in the case of any
change in the location and/or use of Signal Equipment, shall take
within thirty (30) days after the change in location and/or use) such
actions and executed, delivered, filed and recorded such documents
(including any amendments or supplements of Schedules to this Lease the
Agent or Special Counsel may consider necessary or appropriate) and
obtained such Consents (or in the case of any change in the location
and/or use of Signal Equipment, shall execute, deliver, file and record
such documents and obtain such Consents within ten days after the
change in location and/or use) as may be required to assure that the
Lessor, the Agent, the Collateral Agent and the Purchasers continue to
have the same rights and remedies in respect of the affected Item of
Property and the other Property, taken as a whole, after giving effect
to the new use and/or location of the Property (including rights of
access to and perfected, first-priority security interests in the
affected Item of Property and the other Property and appropriate
supplemental restrictions with respect to any Regulated Property).
(vii) The new use and/or location will not have a Material
Adverse Effect.
(viii) The Item of Property shall not be moved to a location
outside the United States without the prior written consent of the
Lessor.
(ix) The Lessee shall have delivered (or in the case of any
change in the location and/or use of Signal Equipment, shall deliver
within ten days after the change in location and/or use) to the Lessor
and the Agent a certificate of a Responsible Officer of the Lessee
certifying the matters set forth in clauses (i), (ii), (iv), (v), (vii)
and (viii).
(x) The Lessee shall have paid, or made arrangements
(satisfactory to the Lessor and the Agent, in their sole reasonable
discretion) to pay, any taxes,
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costs and expenses (including legal, accounting and other professional
fees and expenses) reasonably incurred by the Lessor, the Agent and the
Collateral Agent in connection with such redeployment.
In addition, the Lessee may, at its sole cost and expense, change the location
and/or use of any Item of Property without satisfying one or more of the
conditions set forth above provided that the aggregate Appraised Value of all
Items of Property the Lessee has elected to relocate or use differently without
satisfying all of the conditions set forth above does not at any time exceed in
the aggregate $50,000,000.
(c) The Lessee may, at its sole cost and expense, buy or
arrange for the sale of any Item of Property for cash and for the reinvestment
of the proceeds of such sale at any time, subject to satisfaction of the
following conditions:
(i) Any sale of an Item of Property shall be (1) subject
to satisfaction of the conditions set forth in Section 5.02(a) and (b),
(2) for a purchase price, paid solely in immediately available funds,
at least equal to the Termination Value of the Item of Property to be
sold and (3) conditioned on the execution and delivery by the Lessee to
the Proceeds Trustee (or any designee of the Proceeds Trustee) of
customary fee, escrow, custody, control, security, indemnity and other
agreements governing the acquisition, custody, and disposition of
Permissible Investments, consistent with the terms in this Section, as
the Proceeds Trustee (or any designee of the Proceeds Trustee) and the
Agent and the Collateral Agent may reasonably request.
(ii) Any amounts received from the sale of an Item of
Property shall be paid over to the Proceeds Trustee and applied to
purchase such Permissible Investments as the Lessee may from time to
time direct in a written notice to the Agent and the Proceeds Trustee.
(iii) Any Permissible Investments held by the Proceeds
Trustee shall be applied as follows:
(A) During the period commencing on the date of
receipt of proceeds from any sale of an Item of Property and
ending on the first to occur of (x) the 270th day thereafter
and (y) the date which is 360 days prior to the Expiration
Date, and (z) the date any Default or Event of Default or
Environmental Trigger occurs:
(1) All amounts representing interest,
dividends, distributions or yield on or in respect of
any Permissible Investments shall be paid over, on
the Business Day preceding any Payment Date, to the
Lessee or, if so directed
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in writing by the Lessee, either (x) paid over to the
Lessor for application to amounts due in respect of
Rent hereunder or (y) applied to the purchase of
Permissible Investments.
(2) All amounts representing principal
of Permissible Investments shall either be (x)
reinvested in other Permissible Investments or (y)
paid over to the Lessor to be applied to purchase
replacement Network Assets in accordance with Section
5.08(c)(iv) or to repayment of the Instruments, in
accordance with such written directions as may be
given to the Proceeds Trustee, signed jointly by the
Lessee and the Agent.
(B) Promptly after the date which is the first
to occur of (x) 270 days after receipt of proceeds from the
sale of any such Item of Property or (y) the date any Default
or Event of Default or Environmental Trigger occurs or (z) 360
days prior to the Expiration Date:
(1) All Permissible Investments held by
the Proceeds Trustee in respect of such sale shall be
redeemed, tendered for payment (or payment demanded,
as the case may be), sold or otherwise converted to
cash on such terms as the Proceeds Trustee, in its
sole discretion, considers appropriate. Except for
the obligations (x) to exercise reasonable care in
the custody of the Permissible Investments and other
property actually in the possession and control of
the Proceeds Trustee and (y) to account for and pay
over (net of any brokerage, sales or other costs,
commissions or discounts paid or incurred) any
proceeds actually received from any sale or other
disposition of Permissible Investments, the Proceeds
Trustee shall have no liability or obligation of any
kind in connection with any such sale or other
disposition of Permissible Investments, including in
respect of (a) the timing, method or manner of sale
or other disposition selected (even if another time,
method or manner of sale or other disposition may
have yielded greater net proceeds) or (b) the amount
of net proceeds realized on any such sale or other
disposition.
(2) Any proceeds from the sale or other
disposition of Permissible Investments (together with
all amounts representing interest, dividends,
distributions or yield on or in respect of any
Permissible Investments then held by the Proceeds
Trustee) shall be
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paid over to the Lessor, or upon the written
instructions of the Agent, to the Collateral Agent,
to be held as collateral security for or applied to
the payment of the Instruments, in accordance with
Section 5.09 of the Participation Agreement and the
other Operative Documents.
(iv) Any amount received by the Lessor pursuant to Section
5.08(c)(iii)(A)(2)(y) shall be applied to purchase Network Assets, in
accordance with such written instructions as may be given by the
Lessee, subject to satisfaction of the following conditions:
(A) No Default or Event of Default or
Environmental Trigger shall have occurred and be continuing.
(B) Each Item of Property to be purchased shall
comply in all respects with Section 2.02.
(C) The Lessee shall have given the Lessor and
the Agent a reasonably detailed written notice describing each
Item of Property to be purchased, the use and location of such
Item of Property, the vendor, the purchase price, the terms
and conditions for the purchase and any other relevant
information, not less than 30 days prior to proposed date for
the purchase of such Item of Property and neither the Lessor
nor Agent shall have objected in writing to such acquisition.
(D) The fair market value of each Item of
Property to be purchased shall not be less than the
Termination Value of any similar Item of Property sold,
exchanged or otherwise disposed of pursuant to this Lease
within the 270 day period referred to in this Section.
(E) Each Item of Property to be purchased and
the proposed use and/or location of such Item of Property
shall not have a material adverse effect on the value,
capacity, efficiency, utility or remaining useful life of the
Property, taken as a whole.
(F) The Lessee shall have taken such actions and
executed, delivered, filed and recorded such documents (except
as otherwise provided in clause (K) below) and obtained or
made such Consents as may be required to assure that the
Lessor, the Agent, the Collateral Agent and the Purchasers
continue to have the same rights and remedies in respect of
each Item of Property to be purchased and the other Property,
taken as a whole, as they have in respect
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of the Property held on the Completion Date, after giving
effect to the acquisition, use and location of the Item of
Property to be purchased (including title and rights of access
to each Item of Property to be purchased and the other
Property.
(G) The acquisition, use and location of each
Item of Property to be purchased will not have a Material
Adverse Effect.
(H) The Lessee shall have delivered to the
Lessor and the Agent a certificate of a Responsible Officer of
the Lessor certifying the matters set forth in clauses (A)
through (G).
(I) The Lessee shall have paid, or made
arrangements (satisfactory to the Lessor and the Agent, in
their sole reasonable discretion) to pay, any taxes, costs and
expenses (including legal, accounting and other professional
fees and expenses) reasonably incurred by the Lessor, the
Agent and the Collateral Agent in connection with such
purchase.
(J) On or prior to the date elected by the
Lessee to effect such purchase of Network Assets, a copy of a
bill of sale or other document transferring title in form and
substance satisfactory to the Agent and the Lessor, covering
the Item or Items of Property, executed by the owner thereof
in favor of the Lessor shall have been duly authorized,
executed and delivered and, if appropriate, filed for
recordation by the respective party or parties thereto and
shall be in full force and effect, and an executed counterpart
of each thereof shall be delivered to the Agent and the
Lessor.
(K) As soon as practicable, but no later than
thirty (30) days after the date elected by the Lessee to
effect such purchase of Network Assets, the following
documents shall have been duly authorized, executed and
delivered and, if appropriate, filed for recordation by the
respective party or parties thereto and shall be in full force
and effect, and an executed counterpart of each thereof shall
be delivered to the Agent and the Lessor:
(1) a Certificate of Acceptance covering the Item or
Items of Property, appropriately completed and
executed by the Lessee and Lessor;
(2) an Officer's Certificate from the Lessee
certifying that the replacement Item or Items
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of Property is free and clear of all Liens other than
Permitted Encumbrances;
(3) such mortgages, UCC financing statements and such
other filings covering the Item or Items of Property
as are deemed necessary or desirable by Special
Counsel to establish and protect the security
interests of the Trustee, if any, the Agent and the
Purchasers in respect of the replacement Item or
Items of Property; and
(4) such amendments and supplements of the Schedules
to this Lease covering the Item or Items of Property
as are deemed necessary or desirable by Special
Counsel in respect of any Regulated Property or to
establish and protect the security interests of the
Trustee, if any, the Agent and the Purchasers in
respect of the replacement Item or Items of Property.
Section 5.09 Effect of Disposition. Except as otherwise
expressly provided in Section 3.04 in respect of the expiration of the Term of
this Lease for Property sold and in Section 5.04 in respect of Rent and other
obligations for Property sold and except to the extent that the Instruments have
been prepaid or retired in accordance with Sections 5.01, 5.02 and
5.08(c)(iii)(B)(2), no sale, exchange, substitution, alteration, removal, IRU,
redeployment or other disposition of the Property or any Item of Property
referred to in this Article V shall cause any abatement, reduction, adjustment
or other change in the Rent payable pursuant to this Lease or any other
diminution in the payment or other obligations of the Lessor hereunder.
ARTICLE VI
CERTAIN COVENANTS OF THE LESSEE
Section 6.01 Taxes and Assessments. (a) The Lessee shall pay
or cause to be paid, subject to Section 6.01(b), all Property Charges before the
same become delinquent. If any Property Charge may legally be paid in
installments, such Property Charge may be so paid in installments; provided
that, the Lessee shall pay all such installments on or before the Expiration
Date or earlier termination of this Lease.
(b) So long as (w) no Termination Notice has been delivered,
(x) no Default, Event of Default or Environmental Trigger has occurred and is
continuing, (y) the Lessee shall not have notified the Lessor pursuant to
Section 3.03(a)(ii) that it is terminating this Lease and releasing all of its
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interest in the Property or (z) the Lessee shall not have otherwise surrendered
or be required to surrender the Property to the Lessor for any reason (including
pursuant to Section 10.01), the Lessee shall not be required, nor shall the
Lessor have the right, to pay, discharge or remove any Charges or to comply or
cause the Property or any part thereof to comply with any applicable Legal
Requirement or to pay any materialman's, laborer's or undischarged or unremoved
Lien, as long as the Lessee shall at its sole cost and expense contest, or cause
to be contested, diligently and in good faith, the existence, amount or validity
thereof by appropriate proceedings, which shall (i) in the case of an unpaid
Property Charge or undischarged or unremoved Lien, prevent the collection
thereof from the Lessor or against the Property or any part thereof, (ii)
prevent the sale, forfeiture or loss of the Property or any part thereof, and
(iii) in the case of a Legal Requirement, not subject the Lessor, the Agent, the
Collateral Agent, the Certificate Holders, or the Note Holders to the risk of
any criminal liability or civil penalties or fines for failure to comply
therewith. The Lessee shall give such assurances as may be reasonably demanded
by the Lessor to insure ultimate payment of such Charges or the discharge or
removal of any such materialman's, laborer's or mechanic's Lien or to insure
compliance with such Legal Requirement and to prevent any sale or forfeiture of
the Property, or any part thereof, or any interference with or deductions from
any Fixed Rent, Additional Rent or any other sum required to be paid by the
Lessee hereunder by reason of such non-payment, non-discharge, non-removal or
non-compliance.
(c) The Lessor shall cooperate with the Lessee in any contest
and shall allow the Lessee to conduct such contest (in the name of the Lessor,
if necessary) at the Lessee's sole cost and expense; provided that the Lessor
shall not be required to execute any documents which would materially adversely
affect the fair market value, use or operation of the Property (or any part
thereof) or be reasonably likely to subject the Lessor, the Agent, the
Collateral Agent, any Certificate Holder or any Note Holder to any liability or
result in the admission of liability, guilt or culpability on the part of such
Persons. The Lessee shall notify the Lessor of each such proceeding at least ten
days prior to the commencement thereof, which notice shall describe such
proceeding in reasonable detail.
(d) The Lessee shall, promptly after the final determination
(including appeals) of any contest brought by it pursuant to this Section 6.01,
pay and discharge all amounts which shall be determined to be payable therein
and shall be entitled to receive and retain for its own account all amounts
refunded and/or rebated as a result of any such contest and if the Lessor
receives any amount as a result of such contest to which it is not otherwise
entitled pursuant to this Lease, it shall promptly return such amount to the
Lessee.
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(e) Except as otherwise specifically provided in this Lease,
this Section 6.01 shall not apply in the case of Charges upon, or in respect of,
any Person other than the Lessor or in respect of the property or income of any
such Person.
Section 6.02 Compliance with Laws. The Lessee shall, at the
Lessee's sole cost and expense, comply, and cause the Property to comply, in all
material respects, with all Legal Requirements.
Section 6.03 Certain Agreements. The Lessee shall, and (unless
a Default, an Event of Default or an Environmental Trigger has occurred and is
continuing and the Lessor has revoked such authority) is hereby authorized by
the Lessor to, fully and promptly keep, observe, perform and satisfy, on behalf
of the Lessor, any and all obligations, conditions, covenants and restrictions
of or on the Lessor under the Declaration and any and all other material
contracts involving the Property or any part thereof so that there will be no
default thereunder and so that the other parties thereunder shall be and remain
at all times obliged to perform their obligations thereunder, and the Lessee, to
the extent within its control, shall not permit to exist any condition, event or
fact that could reasonably allow or serve as a basis or justification for any
such Person to avoid such performance.
Section 6.04 Liens. (a) The Lessee shall not create or permit
to be created or exist, and shall promptly remove and discharge, any Lien upon
this Lease, the Property or any other part thereof or interest therein, or upon
any Fixed Rent, Additional Rent or other sum paid hereunder, which Lien arises
for any reason, including any and all Liens which arise out of the ownership,
leasing, use, condition, occupancy, demolition, construction, possession, repair
or rebuilding of the Property or any part thereof or by reason of the failure to
pay dues, fees or assessments under the Declaration or by reason of labor or
materials furnished or claimed to have been furnished to the Lessee, but
excluding Liens created by the Operative Documents or the Securitization
Documents and any other Permitted Encumbrances. Lessee's obligation to remove
any of the above-described Liens arising prior to the termination of this Lease
(or arising due to circumstances occurring prior to the termination of this
Lease) shall survive the termination of this Lease. Nothing contained in this
Lease shall be considered as constituting the consent or request of the Lessor,
express or implied, to or for the performance by any contractor, laborer,
materialman or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of or
to the Property or any part thereof.
(b) NOTICE IS HEREBY GIVEN THAT THE LESSOR IS NOT AND SHALL
NOT BE LIABLE TO ANY PARTY FURNISHING LABOR,
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SERVICES OR MATERIALS TO THE LESSEE, OR TO ANYONE HOLDING OR POSSESSING THE
PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S
OR OTHER SIMILAR STATUTORY LIENS FOR ANY LABOR, SERVICES OR MATERIALS SHALL
ATTACH TO OR AFFECT THE LESSOR'S INTEREST OR ESTATE IN THE PROPERTY OR ANY PART
THEREOF.
(c) The Lessor agrees that the Lessee during the Term shall
have the exclusive right (so long as no Default, Event of Default or
Environmental Trigger has occurred and is continuing) to secure any Consents and
Permits necessary or desirable for the demolition, development, use, operation,
maintenance or condition of the Property or any part thereof; provided that the
fair market value, marketability or use of the Property is not materially
lessened by any such action. The Lessor agrees to execute such documents and
take all other actions as shall be reasonably requested, and otherwise cooperate
with the Lessee, in connection with the matters described above; provided,
however, that all reasonable costs and expenses incurred by the Lessor in
connection therewith shall be borne by the Lessee and that the Lessor shall not
be required to execute any documents which would, in the reasonable opinion of
the Agent or Lessor, materially adversely affect the value, marketability or use
of the Property, create any Trust Liability or otherwise adversely affect the
transactions contemplated by the Operative Documents or Securitization Documents
or the interests of the Lessor, the Certificate Holders or the Note Holders.
Section 6.05 Insurance. (a) The Lessee will purchase and
maintain, or cause to be purchased and maintained, insurance with respect to the
Property of the following types and in the following amounts, and in no event in
amounts less than those maintained by the Lessee or its Affiliates for other
similar facilities owned and/or operated by them:
(i) All-Risk Property Insurance: All-risk property insurance
against physical damage to the Property with a maximum self-insured
retention or deductible allowable of (i) $250,000 per occurrence prior
to the Completion Date and (ii) $5 million per occurrence on and after
the Completion Date (or as otherwise reasonably agreed to by the
Majority Holders), in each case, caused by perils now or hereafter
embraced by or defined in a manuscript "all risks" insurance policy,
including at least such perils as customarily insured for similar
Property. Prior to the Completion Date, such all-risk property
insurance shall not contain any exclusions to coverage other than the
exclusions (or exclusions that are substantially the same as those) set
forth on Schedule 6.05(a)(i), unless otherwise reasonably agreed to by
the Majority Holders;
(ii) General Liability Insurance: Comprehensive general
liability (including contractual, completed
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operations and product liability), insurance against claims for bodily
injury (including death), personal injury and property damage occurring
in respect of the Property or resulting from activities related to the
Property, in the minimum combined single limit amount of $50 million in
the annual aggregate for bodily injury (or death) and/or property
damage with (i) first-dollar coverage, no deductible or self-insured
retention allowable prior to the Completion Date and (ii) a maximum
self-insured retention allowable of $5 million on and after the
Completion Date (or as otherwise reasonably agreed to by the Majority
Holders). Prior to the Completion Date, such comprehensive general
liability insurance shall not contain any exclusions to coverage other
than the exclusions (or exclusions that are substantially the same as
those) set forth on Schedule 6.05(a)(ii), unless otherwise reasonably
agreed to by the Majority Holders; and
(iii) Other Insurance: Such other insurance, including
automobile liability, in such amounts and against such risks, as is
either (x) customarily carried by companies owning, operating or
leasing property or conducting businesses similar and/or similarly
situated to the Property and/or the Lessee, or (y) reasonably requested
from time to time by the Lessor.
Such insurance shall be written by companies that are
nationally recognized (including Lloyd's of London or other recognized
international insurers with an ISI rating of not less than BBB); primary
insurance shall be written by companies rated at least A-IX in the most recent
edition of Best's Key Rating Guide, or an equivalent rating from a nationally
recognized rating agency or as otherwise agreed to by the Agent, the Lessor and
the Purchasers, selected by the Lessee and, other than the insurance specified
in Section 6.05(a)(i), shall name SSBTC (in its individual capacity and as
Trustee) and the Agent, on its own behalf and on behalf of the Holders from time
to time of the Instruments and their assignees, as additional insureds, as their
interests may appear.
(b) The insurance referred to in Section 6.05(a)(i) may be a
blanket policy and shall (i) at all times be in a per occurrence amount at least
equal to the single largest possible loss or damage to the Property; (ii) cover
the full cost to replace or repair any loss or damage to the Property; (iii)
name the Lessor as an additional insured prior to the Completion Date; (iv)
include a lenders' loss payable endorsement in favor of the Lessor and any loss
or damage under such insurance policies shall be payable to the Lessor to be
held and applied pursuant to the terms of this Lease; (v) provide that the
interests of the Lessor, the Agent and the Holders from time to time of the
Instruments shall be insured regardless of any breach or violation by the Lessee
of
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any warranties, declarations or conditions contained in such insurance; (vi)
provide that such insurance shall not be invalidated by any act, omission or
negligence of the Lessee, the Lessor, the Agent or the Holders from time to time
of the Instruments, nor by any proceedings or notices thereof relating to the
Property or Item thereof, nor by legal title to, or ownership of the Property or
any Item thereof becoming vested in or by Lessor or its agents, nor by use of
the Property or any part thereof for purposes more hazardous than permitted by
such policy; and (vii) provide that all insurance claims pertaining to the
Property or any part thereof shall be adjusted by the insurers thereunder with
the Lessee and the Lessor may at its option participate with the Lessee and
their insurers in any compromise, adjustment or settlement.
All policies of insurance required to be maintained pursuant
to Section 6.05(a)(ii) which cover liability for bodily injury or property
damage shall provide that all provisions of such insurance, except the limits of
liability (which shall be applicable to all insureds as a group) and liability
premiums (which shall be solely a liability of the Lessee), shall operate in the
same manner as if there were a separate policy covering each such insured and/or
additional insured, without right of contribution from any other insurance which
may be carried by an insured and/or additional insured.
Every policy required under Section 6.05(a) shall (i)
expressly provide that it will not be canceled or terminated except upon 60
days' written notice to the Lessor and the Lessee, except in the case of
cancellation or termination due to a lapse for non-payment, in which case only
10 days' written notice shall be required; (ii) include a waiver of all rights
of subrogation against the Lessor, the Agent and the Holders from time to time
of the Instruments and any recourse against the Lessor, the Agent or the Holders
from time to time of the Instruments for payment of any premiums or assessments
under any policy; and (iii) not contain a provision relieving the insurer
thereunder of liability for any loss by reason of the existence of other
policies of insurance covering the Property or any Item thereof against the
peril involved, whether collectible or not, if such other policies do not name
the Lessor, the Agent and the Holders from time to time of the Instruments as
additional insureds with loss payable as provided in the Lease. The Lessee shall
advise the Lessor promptly of any policy cancellation or any change adversely
affecting the coverage provided thereby.
(c) The Lessee shall deliver to the Lessor and the Agent the
certificates of insurance evidencing the existence of all insurance which is
required to be maintained by the Lessee hereunder including descriptions of the
previously mentioned Insurance Requirements, such delivery to be made (i) as
provided in Section 2.01(j), 2.02(i) and 4.01 of the Participation Agreement,
(ii) at least twenty-one (21) days
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prior to the issuance of any additional policies or amendments or supplements to
any of such insurance, and (iii) upon the expiration date of any such insurance.
The Lessee shall notify the Lessor and Agent of any nonrenewal of any policy
required hereunder and shall cause each insurer under each policy required
hereunder to give the Lessor notice of any lapse under any such policy. The
Lessee shall not obtain or carry separate insurance concurrent in form, or
contributing in the event of loss, with that required by this Section 6.05
unless the Lessor, the Agent and the Holders from time to time of the
Instruments are named as additional insureds therein, with loss payable as
provided in this Lease. The Lessee shall immediately notify the Lessor, the
Agent and the Holders from time to time of the Instruments whenever any such
separate insurance is obtained and shall deliver to the Lessor the certificates
of insurance and any other documentation (other than blanket policies) required
by the Lessor evidencing the same as is required hereunder.
(d) The insurance requirements of this Section 6.05
(collectively, the "Insurance Requirements") shall not be construed to negate or
modify the Lessee's obligations under Section 4.01 of the Participation
Agreement.
Section 6.06 Maintenance and Repair. (a) The Lessee, at its
own cost and expense, will manage and maintain the Property in good mechanical
condition and repair (ordinary wear and tear excepted), in accordance with
prudent industry practice and in a manner consistent with that of other similar
properties owned or operated by it or its Affiliates similarly situated, and
will take all action, and will make all changes and repairs, structural and
nonstructural, foreseen and unforeseen, ordinary and extraordinary, which may be
required to maintain the Property in good mechanical condition and repair
(ordinary wear and tear excepted), in accordance with prudent industry practice,
and in compliance with (1) all Legal Requirements and Insurance Requirements at
any time in effect, and (2) any required maintenance procedures of the
manufacturers of Property relating to maintenance and operation (if and so long
as there are any manufacturer's warranties applicable) necessary to preserve the
manufacturer's warranties, if any, on the Property. The Lessee shall, in
accordance with prudent industry practice, repair or replace each Item of
Property that shall have become worn out, damaged, inoperative or obsolete in
whole or in part; provided, however, that (i) the fair market value,
marketability or use of the Property shall not be materially lessened and (ii)
such replacements shall be of a type currently used in the industry for the same
purpose and having a remaining useful life at least as long as that of the Item
of Property (or any part thereof), as the case may be, repaired or replaced
(prior to obsolescence, loss or damage and the like). All repairs, replacements
and rebuilding by the Lessee hereunder, to the extent permitted by Law, shall
immediately become and shall remain part of the Property of
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the Lessor, subject to this Lease. The Lessor shall not be required to, and
Lessee hereby waives any right to require the Lessor to, manage, maintain,
replace, repair or rebuild the Property or any part thereof and the Lessee
waives any and all rights it may now or hereafter have to make any repairs at
the cost and expense of the Lessor pursuant to any Legal Requirement, Insurance
Requirement, or otherwise, at any time in effect.
(b) All appliances, parts, instruments, appurtenances,
accessories, furnishings and other Property of whatever nature, which may from
time to time be incorporated or installed in or attached to any Item of Property
("Parts") (except for a temporary replacement Part) at any time removed from the
Property shall remain the property of the Lessor and subject to this Lease, no
matter where located, until such time as such Parts shall be replaced by Parts
that have been incorporated or installed in or attached to such Property and
that meet the requirements specified in the preceding paragraph. Immediately
upon any replacement Part (except for a temporary replacement Part) becoming
incorporated or installed in or attached to any Item of Property as provided
herein, without further act, (i) ownership of the replaced Part shall thereupon
vest in the Lessee or its designee, free and clear of all rights of the Lessor
and shall no longer be deemed a Part hereunder; (ii) ownership of such
replacement Part shall thereupon vest in the Lessor (subject only to Permitted
Encumbrances); and (iii) such replacement Part shall become subject to this
Lease and be deemed part of the Property for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to the
Property.
(c) Except for Permitted Encumbrances, in the event that all
or any part of the Property shall encroach upon any adjoining or adjacent
property or right-of-way, or shall violate any rights-of-way, permits, licenses,
agreements or conditions affecting the Property or any part thereof, or shall
obstruct any easement or right-of-way to which the Property or any part thereof
may be subject, then the Lessee shall, at its sole cost and expense, either (i)
contest such matter pursuant to 6.01(b) hereof, (ii) obtain valid and effective
Permits for or Consents to such encroachments and/or violations (without any
liability to the Lessor, the Agent, the Certificate Holders or the Note Holders
for which such parties are not indemnified by the Lessee) or waivers or
settlements of all claims, liabilities and damages resulting therefrom, or (iii)
make such changes, including alteration or removal, to the Property (as the case
may be) and take such other action as shall be reasonably necessary to rectify
such encroachments, violations, hindrances, obstructions or impairments, subject
to the Lessor's consent if and to the extent required by Section 6.01(b).
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Section 6.07 Inspection Rights. (a) Subject to any
restrictions that may be contained in any Real Property Instruments, the Lessor
Group shall have the right (which may be delegated to its consultants and
authorized representatives), but not the obligation, to inspect the Property and
any part thereof and records related to the construction, operation and use of
the Property and to discuss such of the affairs, finances, and accounts as are
relevant to the Operative Documents or the Securitization Documents with the
officers of Lessee, in all cases, at reasonable times in compliance with and
subject to Lessee's reasonable security and safety procedures, in effect from
time to time. Any such inspection shall be made after 10 days advance written
notice to the Lessee; provided, however, that no advance written notice need be
given if any member of the Lessor Group, in its reasonable discretion, has
reason to believe that a Default, Event of Default or Environmental Trigger has
occurred or other exigent or emergency conditions exist; and provided further,
that all such inspections upon the occurrence and during the continuance of a
Default, an Event of Default or a Environmental Trigger shall be at the expense
of the Lessee.
(b) If a Default, an Event of Default, or an Environmental
Trigger has occurred and is continuing or if the Lessee has exercised its option
to terminate this Lease pursuant to Section 3.03(a)(ii), then the Lessee shall
give or cause to be given to the Lessor Group such additional access to the
Property and to the Lessee's books and records relating to the management,
operation, use, maintenance, renovation, construction or occupancy of the
Property as it may require for any purpose, including for marketing, selling,
operating or otherwise disposing of the Property.
Section 6.08 Assignments, Etc. Except as expressly provided in
Section 5.04(a) or except in the case of the Lessee's grant of an Approved IRU,
the Lessee shall not mortgage, pledge, assign or otherwise encumber its interest
in and to this Lease or in and to any IRU or the rentals payable thereunder
without the prior written consent of the Lessor. Any mortgage, pledge or
assignment of the Lessee's interest hereunder or under any such IRU granted,
otherwise than as expressly permitted by this Section 6.08, shall be null and
void and of no force or effect. A Change in Control of Lessee by merger,
consolidation or any other means, or any assignment by operation of law shall be
deemed an assignment requiring the Lessor's prior written consent.
Section 6.09 Location. Except as expressly permitted by
Section 5.08 or other provisions of this Lease, the Lessee shall not change the
location of any Item of Property without the prior written consent of the
Lessor.
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ARTICLE VII
CONDEMNATION AND CASUALTY
Section 7.01 Condemnation and Casualty. (a) The Lessee hereby
irrevocably assigns to the Lessor any award or compensation or insurance payment
or other proceeds to which the Lessee may become entitled by reason of its
interest in the Property or any part thereof (other than proceeds from business
interruption insurance) if prior to the Expiration Date (i) the Property or any
part thereof is damaged or destroyed by fire or other casualty (each, a
"Casualty") or (ii) the use, occupancy or title of the Property or any part
thereof is taken or requisitioned or sold in, or on account of any actual or
threatened condemnation or eminent domain proceedings, or other action by any
Person having the power of eminent domain or condemnation (each, a
"Condemnation").
(b) The Lessee shall promptly notify the Lessor in writing of
any such Casualty or Condemnation and shall appear in any proceeding or action
to defend, negotiate, prosecute or adjust any claim for any award or
compensation or insurance payment on account of any Casualty or Condemnation and
shall take all appropriate action in connection with any Casualty or
Condemnation. The Lessor shall have the right to appear and participate and to
employ counsel in any such proceeding or action, and the fees and expenses of
such counsel shall be paid by the Lessor. If the Lessee shall elect not to
appear or shall fail to prosecute diligently, the Lessor may assume the
prosecution thereof and the Lessee shall pay all of the reasonable costs and
expenses of the Lessor (including, but not limited to, fees and expenses of
Lessor's Special Counsel) and the fees and expenses of Special Counsel. No
settlement of any such proceeding or action shall be made by the Lessee or the
Lessor without the written consent of the other party hereto, which consent
shall not unreasonably be withheld, conditioned or delayed.
(c) Any and all amounts representing proceeds paid in
connection with any such Condemnation or Casualty, as the case may be
(collectively, the "Proceeds"), shall be paid over to the Proceeds Trustee to be
held in trust by such Proceeds Trustee and distributed pursuant to this Section
7.01(c) and Sections 7.03 and 7.04, as appropriate (all such Proceeds, less the
costs and expenses incurred by the Lessor and the Lessee in collecting such
amounts, but including any reimbursement by the Lessee for costs and expenses in
connection therewith to which the Lessor, the Certificate Holders and the Note
Holders are entitled pursuant to the Operative Documents or Securitization
Documents, are the "Net Proceeds"). Any and all Proceeds received by the Lessee
in connection with any such proceeding or action shall be paid over to the
Lessor, shall be segregated from other funds of the Lessor and shall be
forthwith paid over to the Proceeds Trustee. The Lessee agrees that this Lease
shall control the
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rights of the Lessor and the Lessee in any such Proceeds, and any present or
future Law to the contrary is hereby waived. Any and all reasonable charges,
fees and expenses of the Proceeds Trustee shall be paid from the Net Proceeds.
Section 7.02 Condemnation or Casualty with Termination. If a
Casualty or Condemnation occurs during the Term and the Lessor has received an
opinion, which shall be at the Lessee's sole cost and expense, of the
Independent Engineer to the effect that the restoration of the Property could
not be expected to restore and rebuild the Property to an economic unit of
substantially the same capacity, efficiency and useful life as existed prior to
such Casualty or Condemnation or such restoration and rebuilding could not be
expected to be completed in full prior to the Expiration Date, then the Lessor
or Lessee shall have the option, in their sole discretion, to deliver a
Termination Notice.
Section 7.03 Condemnation or Casualty Without Termination. If,
after a Casualty or Condemnation, neither the Lessor nor the Lessee has given a
Termination Notice in accordance with 7.02, then this Lease shall continue in
full force and effect, and the Lessee shall, at its sole cost and expense,
promptly commence and diligently pursue to completion the rebuilding,
replacement or repair of any damage to the Property, caused by such event in
conformity with the requirements of Section 6.06, as applicable, in order to
restore the Property, (in the case of a Condemnation, as nearly as practicable)
to the value and operating condition thereof immediately prior to such event
(but in no event to a value less than the aggregate Original Capitalized Cost of
the Property (determined in accordance with Section I-B of Schedule 1)). In
connection with such restoration the Lessee shall, before beginning such
restoration, submit plans and specifications for such restoration, together with
an estimate of the cost thereof, and all necessary construction contracts
therefor for the Lessor's and the Independent Engineer's approval, which will
not be unreasonably withheld, conditioned or delayed; provided that (i) the
Property can be restored to an economic unit of substantially the same character
and fair market value as existed immediately prior to such Casualty or
Condemnation and (ii) if the estimated cost to complete such restoration exceeds
the amount of Net Proceeds, the Lessor is, in its sole judgment, satisfied that
the Lessee shall have sufficient funds (the "Excess Funds") available to pay
such excess, which Excess Funds shall be deposited by the Lessee with the
Proceeds Trustee and distributed to the Lessee as hereinafter provided. If the
conditions set forth in the foregoing proviso are not satisfied, the Lessor may
deliver a Termination Notice.
(b) Such work shall be completed in a good and workmanlike
manner free and clear of all Liens for labor, services or materials (except
Permitted Encumbrances) and in compliance with all applicable Legal Requirements
and
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Insurance Requirements. Upon completion of such work, the Lessee shall cause the
Independent Engineer to deliver a certificate to the effect that final
completion of the work has occurred and that the operating condition of the
Property, after taking into consideration the restoration, is equivalent to, or
better than, the operating condition that existed immediately prior to the
Casualty or Condemnation assuming compliance with Section 6.06. All fees and
expenses of the Independent Engineer in connection with any rebuilding and
restoration shall be at the Lessee's sole cost and expense.
(c) The Lessee shall be entitled to receive payment from the
Net Proceeds or the Excess Funds, as the case may be, from time to time as such
work of rebuilding, replacement or repair progresses, but only after
presentation of certificates of the Independent Engineer, delivered by the
Lessee to the Proceeds Trustee (with a copy to the Lessor) from time to time as
such work of rebuilding, replacement or repair progresses. Each such certificate
of the Independent Engineer shall describe the work for which the Lessee is
requesting permission to pay or requesting payment and the cost incurred by the
Lessee in connection therewith and shall state that such work has been properly
completed and that the Lessee has not theretofore received payment for such
work, and shall be accompanied by an Officer's Certificate of the Lessee
certifying that no Default, Event of Default or Environmental Trigger has
occurred and is continuing and that the Net Proceeds and Excess Funds held by
the Proceeds Trustee are to the best of its knowledge adequate to complete such
rebuilding, replacement or repair in accordance with this Section 7.03(c). Upon
completion of and final payment for such work, the Lessee's Officer's
Certificate shall be accompanied by duly executed Lien waivers executed by each
materialman or mechanic furnishing materials or labor for which the Lessee
requested permission to pay or requested payment.
(d) The Proceeds Trustee shall deliver, or cause to be
delivered, payment within five (5) Business Days after its receipt of the
certificates required above. In connection with such payments, the Proceeds
Trustee shall first apply the Excess Funds to the cost of such restoration prior
to the disbursement of any Net Proceeds by the Proceeds Trustee for such
purpose. Upon receipt by the Proceeds Trustee (with a copy to the Lessor) of an
Officer's Certificate from the Lessee, to the effect that final payment has been
made for any such work and stating that the rebuilding, replacement or repair
has been completed in compliance with the terms and conditions of this Lease,
the remaining amount of such Net Proceeds shall be paid to the Lessee. The
Lessee shall be responsible for the cost of any such repair, rebuilding or
restoration in excess of such Net Proceeds and Excess Funds, for which cost the
Lessee shall make adequate provision acceptable to the Lessor.
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Section 7.04 Temporary Condemnation or Lease Termination.
Notwithstanding any provision to the contrary contained in this Article VII, in
the event of any temporary Condemnation, this Lease shall remain in full force
and effect, and provided no Default, Event of Default or Environmental Trigger
has occurred and is continuing, the Lessee shall be entitled to receive the Net
Proceeds allocable to such temporary Condemnation, except that if this Lease
shall expire or terminate during such temporary Condemnation, then the Lessee
shall be entitled to the Net Proceeds allocable to the period after the
termination or expiration of this Lease only if it has paid the Termination
Value for the Property.
ARTICLE VIII
ENVIRONMENTAL MATTERS
Section 8.01 Environmental Event. (a) The Lessee shall
promptly, but in any case within five Business Days, notify the Lessor and the
Agent if (i) any environmental event has occurred or any environmental condition
is discovered in, on, beneath, from or involving the Property or any part
thereof (including, but not limited to, the presence, emission or release of
Hazardous Materials or the violation of any applicable Environmental Law) for
which a remediation or reporting could reasonably be required or (ii) the Lessee
has received notification that it, the Lessor, the Property or any part thereof
is the subject of an Environmental Action that could reasonably be expected to
result in any ordered remediation or corrective action or other liability (each
of (i) and (ii) an "Environmental Event").
Section 8.02 Environmental Trigger Termination. Following the
receipt of a notice pursuant to Section 8.01(a), the Lessor, the Agent, or the
Majority Holders, each in their sole discretion, may require the Lessee to cause
the Environmental Consultant to conduct an environmental audit of the Property,
having a scope designed to evaluate the existence and anticipated impact of the
Environmental Event at issue, at the cost and expense of the Lessee, and to
provide a copy of the Environmental Consultant's report on its audit to the
Lessor, the Majority Holders and the Agent. If it is the opinion of the Agent
and the Environmental Consultant that an Environmental Event has occurred or
exists that would result in a material adverse effect on the use, value or
condition of the Property, (an "Environmental Trigger"), the Lessor, the Agent
or the Majority Holders shall have the option, each in its sole discretion, to
deliver or cause the Lessor to deliver, within thirty days after receipt of such
report, a Termination Notice.
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Section 8.03 Environmental Remediation. Irrespective of
whether an Environmental Trigger has occurred, the Lessee shall immediately
commence, or cause to be commenced, at its sole cost and expense, such actions
as may be necessary to comply in all material respects with all applicable
Environmental Laws and to alleviate any significant risk to human health or the
environment if the same arises from a condition on or in respect of the Property
or any part thereof, whether existing prior to, on or after the date of this
Lease. Once the Lessee commences such actions, the Lessee shall thereafter
diligently and expeditiously proceed to comply in a timely manner with all
Environmental Laws and to eliminate any significant risk to human health or the
environment and shall, at the request of the Lessor or the Agent, give periodic
progress reports on its compliance efforts and actions.
Section 8.04 Environmental Compliance. The Lessee shall, and
it shall require and ensure that any and all sublessees, employees, contractors,
subcontractors, agents, representatives, affiliates, consultants, occupants and
any and all other Persons, (i) comply with all applicable Environmental Laws,
and (ii) use, employ, process, emit, generate, store, handle, transport, dispose
of and/or arrange for the disposal of any and all Hazardous Materials in, on or,
directly or indirectly, related to or in connection with the Property or any
part thereof in a manner consistent with prudent industry practice and in
compliance with all applicable Environmental Laws, and in a manner which does
not pose a significant risk to human health, safety (including occupational
health and safety) or the environment. The Lessor and the Lessee hereby
acknowledge and agree that the Lessee's obligations hereunder with respect to
Hazardous Materials and Environmental Laws are intended to bind the Lessee with
respect to matters and conditions on, in, under, beneath, from, with respect to,
affecting, related to, in connection with, or involving the Property or any part
thereof.
ARTICLE IX
REMEDIES
Section 9.01 General Remedies. In accordance with the terms
and conditions contained in this Lease, the Lessor may take all steps to protect
and enforce the rights of the Lessor or obligations of the Lessee hereunder,
whether by action, suit or proceeding at Law or in equity (for the specific
performance of any covenant, condition or agreement contained in this Lease, or
in aid of the execution of any power herein granted or for any foreclosure, or
for the enforcement of any other appropriate legal or equitable
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remedy) or otherwise as the Lessor shall deem necessary or advisable.
Section 9.02 Default Remedies. (a) Subject to Section 9.02(i),
if an Event of Default shall have occurred and be continuing, including an Event
of Default arising from the breach of a covenant, condition or other provision
hereof, then upon five Business Days' prior written notice by the Lessor to the
Lessee, in addition to all other rights, remedies or recourses available, the
Lessor may either (A) terminate this Lease by issuing a Termination Notice or
(B) terminate the Lessee's right to possession of the Property or any part
thereof.
(b) If the Lessor should elect to terminate this Lease as
provided in clause (A) of Section 9.02(a), then this Lease and the estate hereby
granted shall expire and terminate at midnight on the fifth Business Day (or
such later date as may be specified therein) after the date of such notice, as
fully and completely and with the same effect as if such date was the date
herein fixed for the expiration of the Term and all rights of the Lessee shall
terminate, but the Lessee shall remain liable as hereinafter provided.
(c) Should the Lessor elect not to terminate this Lease,
this Lease shall continue in effect and the Lessor may enforce all the Lessor's
rights and remedies under this Lease including the right to recover the Fixed
and Additional Rent as each becomes due under this Lease. For the purposes
hereof, the following do not constitute a termination of this Lease:
(i) Acts of maintenance or preservation of the Property or
any part thereof or efforts to relet the Property or any part thereof,
including termination of any sublease of the Property to a third party
and removal of such subtenant from the Property;
(ii) The appointment of a receiver upon initiative of the
Lessor to protect the Lessor's interest under this Lease; and/or
(iii) The exercise of any rights under Section 11.02.
(d) If an Event of Default shall have occurred and be
continuing, upon five Business Days' notice, the Lessor shall have (i) the
right, whether or not this Lease shall have been terminated pursuant to Section
9.02(a), to re-enter and repossess the Property or any part thereof, as the
Lessor may elect, by summary proceedings, ejectment, any other legal action or
in any other lawful manner the Lessor determines to be necessary or desirable
and (ii) the right to remove all Persons and property therefrom. The Lessor
shall be under no liability by reason of any such re-entry, repossession or
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removal. No such re-entry or repossession of the Property or any part thereof
shall be construed as an election by the Lessor to terminate this Lease unless a
Termination Notice is given to the Lessee pursuant to Section 9.02(a)(A), or
unless such termination is decreed by a court or other governmental tribunal of
competent jurisdiction. Should the Lessor elect to re-enter the Property as
herein provided or should the Lessor take possession pursuant to legal
proceedings or pursuant to any notice provided for by Law or upon termination of
this Lease of the Lessee's right to possession of the Property or any part
thereof pursuant to Section 9.02(a) or otherwise as permitted by Law, the Lessee
shall peaceably quit and surrender the Property or any part thereof to the
Lessor. In any such event, neither the Lessee nor any Person claiming through or
under the Lessee, by virtue of any Law, shall be entitled to possession or to
remain in possession of the Property or any such part thereof, but shall
forthwith quit and surrender the Property to the Lessor.
(e) At any time or from time to time after the re-entry or
repossession of the Property or any part thereof pursuant to Section 9.02(d),
whether or not this Lease shall have been terminated pursuant to Section
9.02(a), the Lessor may (but shall be under no obligation to) relet the Property
or any part thereof, for the account of the Lessee, without notice to the
Lessee, for such term or terms and on such conditions and for such uses as the
Lessor, in its sole and absolute discretion, may determine. The Lessor may
collect and receive any rents or other proceeds payable by reason of such
reletting. The Lessor shall not be liable for any failure to relet the Property
or any part thereof or for any failure to collect any rent due upon any such
reletting.
(f) No termination of this Lease or of the Lessee's right to
possession of the Property or any part thereof pursuant to Section 9.02(a), or
by operation of Law, and no re-entry or repossession of the Property or any part
thereof pursuant to Section 9.02(d), and no reletting of the Property or any
part thereof pursuant to Section 9.02(e), shall relieve the Lessee of its
liabilities and obligations hereunder, all of which shall survive such
termination, re-entry, repossession or reletting.
(g) In the event of any termination of this Lease or of the
Lessee's right to possession of the Property or any part thereof by reason of
the occurrence of any Event of Default, the Lessee shall pay to the Lessor all
Fixed Rent, Additional Rent and other sums required to be paid to and including
the date of such termination of this Lease or of the Lessee's right to
possession; and thereafter, until the end of the Term, whether or not the
Property or any part thereof shall have been relet, the Lessee to the extent
permitted by applicable Law shall be liable to the Lessor for, and shall pay to
the Agent (on behalf of the Lessor), on the days on which such amounts would be
payable under this Lease in the
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absence of such termination, re-entry or repossession, as agreed current damages
and not as a penalty: all Fixed Rent, Additional Rent and other sums which would
be payable under this Lease by the Lessee, in the absence of such termination,
re-entry or repossession, and all costs (including attorneys' fees and expenses)
incurred by the Lessor hereunder (payable on demand) and all costs of any
environmental remediation pursuant to Section 8.03.
(h) To the extent permitted by Law, at such time after the
termination or expiration of this Lease if the Lessee shall have paid all
amounts required to be paid by it under this Lease, the other Operative
Documents and the Securitization Documents and the Lessee shall have discharged
any and all obligations to the Lessor, the Certificate Holders and the Note
Holders, then the Lessor shall pay and assign to the Lessee, when received, the
net proceeds, if any, of any reletting effected for the account of the Lessee
pursuant to Section 9.02(e), and any residual interest in the Property after
deducting from such proceeds all of the Lessor's expenses in connection with
such reletting (including, but not limited to, all repossession costs, brokerage
commissions, attorneys' fees and expenses, employees' expenses, alteration costs
and expenses of preparation for such reletting and all costs of any
environmental remediation pursuant to Section 8.03).
(i) The Company may, at any time prior to exercise of any
remedies by the Lessor hereunder, elect to cure any Default, Event of Default or
Environmental Trigger by purchasing the Property or Item of Property to the
extent that such purchase would cure (to the Agent's sole satisfaction) a
Default or Event of Default or Environmental Trigger and for an amount equal to
such Property's Termination Value.
Section 9.03 Lessee Default Repurchase Option. Notwithstanding
the foregoing, if an Event of Default shall have occurred, the Lessee may within
five (5) Business Days after the earliest of the Lessor's or Agent's notice of
such occurrence thereafter pay to the Agent, on behalf of the Lessor, an amount
equal to the Termination Value for all of the Property in which event the Lessor
shall be obligated to convey the Property to the Lessee in compliance with
Section 5.04.
Section 9.04 Payment on Default. The Lessor shall be entitled
to recover from the Lessee, and the Lessee will pay to the Agent (on behalf of
the Lessor) on demand, such amounts set forth below in lieu of all liquidated
damages in respect of Fixed Rent beyond the date of such demand (but in addition
to any claim for current damages in respect of Fixed Rent or Additional Rent and
any other amounts due and payable to the Lessor hereunder (prior to the date of
such demand)), at any time after termination of the Term of this Lease or
re-entry
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or repossession of the Property, in any case, by reason of the occurrence of:
(i) an Event of Default (other than an Event of Default
under Section 6.01(g) or 6.01(h) of the Participation Agreement or
claims brought by the Lessor relating to fraud, misapplication of
funds, illegal acts, or willful misconduct on the part of the Lessee)
prior to the Completion Date, an amount equal to the Residual Value
Amount, in which event the Lessee shall release all of its interest in
the Property;
(ii) an Event of Default under Section 6.01(g) or 6.01(h)
of the Participation Agreement, or claims brought by the Lessor
relating to fraud, misapplication of funds, illegal acts, or willful
misconduct on the part of the Lessee, an amount equal to the
Termination Value, in which event the Lessor shall be obligated to
convey the Property to the Lessee in compliance with Section 5.04;
(iii) an Event of Default (other than under Section
6.01(p) or 6.01(q)(i) of the Participation Agreement) on or after the
Completion Date, an amount equal to the Termination Value, in which
event the Lessor shall be obligated to convey the Property to the
Lessee in compliance with Section 5.04; or
(iv) an Event of Default under Section 6.01(p) or
6.01(q)(i) of the Participation Agreement, an amount equal to the
Residual Value Amount, in which event the Lessee shall release all of
its interest in the Property;
provided, however, that with respect to clauses (i) and (iv), the Company shall
not be obligated to pay an amount in excess of the Residual Value Amount
calculated to include all Rent and other amounts due and payable to the Lessor
as if such amounts had been paid by the Company prior thereto.
Section 9.05 Additional Rights. (a) No right or remedy
hereunder shall be exclusive of any other right or remedy, but shall be
cumulative and in addition to any other right or remedy hereunder or under the
other Operative Documents or Securitization Documents or now or hereafter
existing at Law or in equity and the exercise by the Lessor or the Collateral
Agent of any one or more of such rights, powers or remedies shall not preclude
the simultaneous exercise of any or all of such other rights, powers or
remedies. Failure to insist upon the strict performance of any provision hereof
or to exercise any option, right, power or remedy contained herein shall not
constitute a waiver or relinquishment thereof for the future. Receipt by the
Lessor (or by the Agent on behalf of the Lessor) of any Fixed Rent, Additional
Rent, Residual Value Amount, Termination Value or other sum payable hereunder or
under any other Operative Document or Securitization Documents with knowledge of
the breach by the
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Lessee of any provision hereof shall not constitute a waiver of such breach, and
no waiver by the Lessor of any provision hereof shall be deemed to have been
made unless made in writing. The Lessor shall be entitled to injunctive relief
in case of the violation or attempted or threatened violation of any of the
provisions hereof, a decree compelling performance of any of the provisions
hereof or any other remedy allowed to the Lessor at law or in equity.
(b) Except as otherwise provided in Section 9.03, the Lessee
hereby waives and surrenders for itself and all those claiming under it,
including creditors of all kinds, (i) any right and privilege which they may
have under any applicable Law or otherwise to redeem the Property or any part
thereof or to have a continuance of this Lease after termination of the Lessee's
right of occupancy by Law or by any legal process or writ, or under the terms of
this Lease, or after the termination of the Term of this Lease as herein
provided and (ii) the benefits of any Law which exempts property from liability
for debt or for distress for rent.
(c) If an Event of Default exists hereunder, the Lessee shall
pay to the Agent (on behalf of the Lessor) on demand all fees and out-of-pocket
expenses incurred by the Lessor in enforcing its rights under this Lease,
including attorneys' fees and expenses.
(d) The Lessee makes no representation or warranty concerning
the ability of the Lessor to reenter or repossess any portion of the Property
that may be located on Real Property to which access rights are restricted under
applicable Real Property Instruments.
ARTICLE X
SURRENDER
Section 10.01 Return of Property. (a) If upon the expiration
or termination of the Term or the termination of Lessee's possession of the
Property, Lessee or its designee has not purchased the Property as provided
hereunder, the Lessee shall surrender (i) all of the Property in the operating
condition, efficiency, utility and with the remaining useful life, it had upon
the commencement of the Term, acquisition or completion of construction, as the
case may be, except as repaired, rebuilt, renovated, altered, added to or built
as permitted or required hereby and except for ordinary wear and tear, and (ii)
the Alterations in good operating condition, in substantially the condition the
same were in when acquired, constructed or installed, except for ordinary wear
and tear. To the extent that the Property is not in compliance with the above
upon such expiration or termination (except as a consequence of a Casualty or
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Condemnation, as to which Article VII applies), the Lessee shall pay to the
Agent (on behalf of the Lessor) such additional amounts as are required to place
it in compliance therewith.
Section 10.02 No Liens. The Lessee shall also surrender the
Property to the Lessor free and clear of all Liens, easements, consents and
restrictive covenants and agreements affecting the Property other than Permitted
Encumbrances.
Section 10.03 Environmental Compliance. The Lessee shall also
surrender the Property in a condition such that it is in compliance with all
applicable Environmental Laws then enacted and all regulations then proposed at
the time of construction or "modification" (as such term is defined in 40 CFR
Section 51.165(a)(1)(v), Section 51.166(b)(2), Section 52.21(b)(2) and Section
60.14) of the Property by any governmental agency to the extent such regulations
contain retroactive requirements (irrespective of whether the deadline for such
compliance would otherwise expire after the end of the Term. Nothing contained
in this Section 10.01 shall relieve or discharge or in any way affect the
obligation of the Lessee to cure promptly pursuant to this Lease any violations
of Legal Requirements referred to in this Lease, or to pay and discharge any
Liens and Charges against the Property, subject, however, to the right of the
Lessee to contest the same pursuant to the provisions of Sections 12.09 and
6.01(b). Lessee shall cooperate, to the fullest extent permitted by Law, with
the Lessor, its subsequent lessees, operators or purchasers to effect the
transfer of all of Lessee's Consents and Permits for the Property to such
Persons.
Section 10.04 Removal of Other Property. The Lessee, at its
sole cost and expense, shall remove from the Property on or prior to such
expiration or termination, all property which is not owned by the Lessor and
shall repair any damage caused by such removal and shall restore the Property to
the condition and working order (or reasonable equivalent thereof) in which it
existed immediately prior to the installation or removal of such property,
except for ordinary wear and tear. Lessee shall indemnify and hold harmless the
Lessor, its successors and assigns against any loss, liability, cost, expense,
penalty or claim arising out of the Lessee's removal of such property from the
Property including any environmental liability arising therefrom. Any such
property of the Lessee not so removed shall become the property of the Lessor,
and the Lessor may cause such property to be removed and disposed of, and the
cost of any such removal and disposition of the Lessee's property and of
repairing any damage caused by such removal and of the restoration of the
Property to the condition and working order (or reasonable equivalent thereof)
in which it existed immediately prior to the installation or removal of such
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property, ordinary wear and tear excepted, shall be borne by the Lessee.
Section 10.05 Return Conditions. Upon the election of the
Lessee to terminate this Lease pursuant to Section 3.03(a)(ii), or upon other
termination of this Lease, provided that the Lessee or its designee does not
purchase the Property, the Lessee shall provide, or cause to be provided or
accomplished, at the sole cost and expense of the Lessee, to or for the benefit
of the Lessor and the holders of the Instruments, at least thirty (30) days but
not more than sixty (60) days prior to the Expiration Date or date of such other
termination of this Lease each of the following (collectively, the "Return
Conditions"):
(i) To the extent that the Property includes Real
Property, receipt by the Agent of an environmental audit, performed by
environmental consultants selected by the Lessor, satisfactory in scope
and content to the Agent, the Lessor, the Collateral Agent, each
Certificate Holder and each B-Note Holder, in each case, in their
reasonable discretion to the effect that (A) such Property is in
compliance with all applicable Environmental Laws, (B) such Property is
free from all Hazardous Materials, the presence of which could have a
Material Adverse Effect on the Property and (C) there is no pending or
threatened litigation, investigation or other legal proceeding that
could result in any liability to any B-Note Holder, Certificate Holder,
the Agent or the Lessor.
(ii) Receipt by the Agent of a report of the Appraiser
and/or the Independent Engineer, satisfactory in scope and content to
the Lessor, the Agent, the Certificate Holders and the B-Note Holders,
in each case, in their reasonable discretion, to the effect that (A)
the Projects have been constructed and maintained in accordance with
the terms and conditions of this Lease and the other Operative
Documents and the requirements of all Legal Requirements, Permits,
Consents and prudent industry standards; (B) all mechanical,
electrical, security, plumbing, fire safety, telecommunications,
structural and other systems in or constituting part of the Projects
are operating properly in accordance with standards and specifications
for such systems not less than those in effect on the commencement of
the Term, (and such other standards and specifications as may be
required by applicable Legal Requirements); and (C) no Condemnation or
Casualty or Environmental Trigger has occurred which has not been
remedied in accordance with the terms of the Operative Documents.
(iii) Receipt by the Agent of evidence satisfactory to the
Agent, the Lessor, the Certificate Holders and the B-Note Holders, in
each case, in their sole discretion, that the Lessee is, and (as of the
Expiration Date or
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date of such other termination of the Lease) will be, in full
compliance with the Services Agreement and has made arrangements
satisfactory to the Agent for the provision of services required
thereunder for the term thereof.
(iv) Receipt by the Agent of evidence satisfactory to the
Agent, the Lessor, the Certificate Holders and the B-Note Holders, in
each case, in their sole discretion, that the Lessor has a
first-priority, perfected security interest in all Network Assets held
by other Persons which are related to any IRU constituting a part of
the Property.
(v) If directed to do so by the Lessor, the Lessee (at its
sole cost and expense) shall execute and deliver any and all further
instruments, agreements and documents as may, in the reasonable opinion
of the Lessor, be necessary to confirm the termination and expiration
of this Lease and to acknowledge that the Lessee, from the date of
termination and expiration, ceases to have any interest in the Property
under this Lease and to confirm the Lessor's interest in the Property.
(vi) Receipt by the Agent of a report of an independent
appraiser and/or engineer chosen by the Lessor and satisfactory in
scope and content to the Lessor, the Agent, the B-Note Holders and the
Certificate Holders, in each case, in their sole discretion, to the
effect that the fair market value of any Property received in any
exchange, substitution, redeployment or similar transaction
contemplated by this Lease is at least equal to the fair market value
of any Property surrendered in such exchange, substitution,
redeployment or similar transaction contemplated by this Lease.
(vii) Receipt by the Lessor of the following, each in form and
substance satisfactory to the Lessor, the Agent, the B-Note Holders and
the Certificate Holders, in each case, in their sole discretion:
(A) a complete survey and title report with respect to any
Real Property in scope and content reasonably satisfactory to
the Agent, the B-Note Holders and the Certificate Holders and
in accordance with United States telecommunications industry
standards, together with all available information pertaining
to (i) ownership or right to use any specified right-of-way or
easement or other portion of Real Property, (ii) existing
agreements respecting any right-of-way or easement (including
utility crossings) or other use of any portion of the Real
Property and (iii) restrictions on the right to use or to
occupy any right-of-way or easement or other portion of the
Real Property for the purposes intended by the Operative
Documents;
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(B) conveyancing, assignment, transfer, and other documents
(including any required Consents or Permits) that are
sufficient to convey or assign to the Lessor (or its designee)
on the Expiration Date either (i) a non-exclusive license to
occupy and use any Real Property, including any easements,
rights-of-way, licenses, Permits or allowances and other
rights of use, (without regard to whether any such right is
based on historical use or direct grant of authority from the
property owner or applicable Governmental Authority) used by
the Lessee in connection with the operation of the Property,
to the same extent and in the same manner used by the Lessee
during the Term or (ii) a direct grant of authority or right
from the property owner or applicable Governmental Authority
to occupy and use any Real Property used by the Lessee in
connection with the operation of the Property, to the same
extent and in the same manner used by the Lessee during the
Term, together with amounts sufficient to pay any recording,
filing, transfer, documentary stamp or other transfer tax;
(C) a complete and current inventory of all Signal Equipment,
Racks, uninstalled Cable and other equipment constituting
Items of Property (including any Property acquired in exchange
or substitution for or redeployment or replacement thereof);
(D) detailed as-built maps (allignment sheets) showing the
location of all Cable, Conduit and Cable Facilities, including
Global Positioning System coordinates for (i) all Cable
Facilities and POPs, and (ii) all Cable at intervals of not
less than two miles and a detailed description of the identity
and location of any other easements, rights-of-way,
restrictions or other users of a specified portion or any Real
Property;
(E) as-built drawings, technical specifications and other
engineering data for all Cable Facilities, Racks and POPs;
(F) recent test reports covering the matters set forth in
Exhibit B and such other matters as the Agent, the Lessor or
any Holder of Notes or Certificates may request, each in their
sole discretion;
(G) true and complete original copies of all contracts, IRUs,
books and records, Permits, Consents, licenses, manuals,
drawings, blueprints, maps, surveys, specifications,
warranties by manufacturers, vendors or others, intellectual
property rights, Real Property Instruments and other
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documents relevant to the ownership, use and operation of the
Property.
(viii) Receipt by the Agent of evidence satisfactory to the
Lessor, the Agent, the B-Note Holders and Certificate Holders, in each
case, in their sole discretion, that:
(A) the Services Agreement is in full force and effect and
Williams and its Subsidiaries are capable of discharging, in a
timely and complete manner, all of their respective
obligations thereunder; and
(B) the Lessor otherwise has title to, or other rights in
respect of, in each case, satisfactory to the Lessor, the
Agent, the B-Note Holders and Certificate Holders, in each
case, in their sole discretion, all of the Property and other
assets or rights as may be necessary or appropriate either (1)
to operate the Property or (2) to sell, lease, exchange,
assign, grant rights to use, encumber or otherwise dispose of
all (as an operating business) or any portion of the Property,
in each case in conformity with all Legal Requirements,
applicable Insurance Requirements, Consents, Permits and
contractual commitments binding on the Property, including any
licenses (including any required license from the Federal
Communications Commission or other Governmental Authority),
easements, rights-of-way, and intellectual property rights.
(ix) Receipt of evidence satisfactory to the Lessor, the
Agent, the B-Note Holders and Certificate Holders, in each case, in
their sole discretion, that:
(A) all rights and obligations of the Lessor under the
Facility Agreements, other than the Surviving Facility
Agreements (as hereinafter defined) have been terminated
without cost, expense, recourse or other liability of any kind
to the Lessor, the Agent, or the Purchasers;
(B) the Surviving Facility Agreements and all other agreements
and arrangements contemplated thereby are in place, executed
by the parties thereto and are valid, enforceable and in full
force and effect (both before and immediately after the
Expiration Date);
(C) the Surviving Facility Agreements and such agreements and
arrangements adequately provide for the services and other
rights contemplated thereby; (iv) no default exists under any
of the Surviving Facility Agreements; and
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(D) none of the Surviving Facility Agreements have been
modified or amended or waived in violation of the provisions
of the Operative Documents. The "Surviving Facility
Agreements" means (x) the Services Agreement and (y) those
Facility Agreements that Lessor, the Agent and each Holder of
the B-Notes and Certificates selects (in their sole
discretion) to survive the Expiration Date.
(x) Receipt by the Agent of evidence satisfactory to the
Lessor, the Agent, the B-Note Holders and Certificate Holders, in each
case, in their sole discretion, that all outstanding obligations and
Charges relating to the Property (other than the B-Notes and the
Certificates) have been paid and discharged in full (including all such
outstanding obligations and Charges arising as a consequence of
satisfaction of the other Return Conditions under this Section).
(xi) Receipt by the Agent of an agreement (the "Return
Indemnity Agreement") executed by Williams and satisfactory in form and
substance to the Lessor, the Agent, the B-Note Holders and Certificate
Holders, in each case, in their sole discretion, pursuant to which
Williams (i) represents, warrants and covenants that the Return
Conditions have been satisfied and will remain satisfied through and
immediately after the Expiration Date and (ii) agrees to indemnify and
hold harmless the Lessor, the Agent and the Holders of the B-Notes and
the Certificates against any loss, cost, expense, (including fees and
expenses of legal counsel, accountants and other professionals), tax,
penalty or other liability of any kind incurred as a consequence of the
falsity or breach of the representations, warranties and covenants of
Williams described in clause (i) above. The rights of Lessor under the
Return Indemnity Agreement will be assignable to any purchaser of all
or any part of the Property (or any other successor or assignee of
Lessor).
(xii) Receipt of evidence satisfactory to the Lessor, the
Agent, the B-Note Holders and Certificate Holders, in each case, in
their sole discretion, that the Lessor will not be subject to
regulation by any Federal or state Governmental Authority as a common
carrier, public utility, intra or interstate telecommunications
provider, carrier or otherwise.
(xiii) Such other documents, instruments, legal opinions,
surveys, and other evidence establishing to the satisfaction of the
Lessor, the Agent, the B-Note Holders and Certificate Holders, in each
case, in their sole discretion, that (i) Lessor has all property,
services, permits, assets and rights necessary, to own, operate and
maintain the Property from and after the termination or expiration of
this Lease, (ii) no Default, Event of
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Default or Environmental Trigger then exists and (iii) the other Return
Conditions have been satisfied.
(xiv) If directed to do so by the Lessor, the Lessee (at its
expense) shall:
(A) Use its reasonable best efforts, available resources and
contacts with Governmental Authorities, owners of Real
Property and others, in a manner consistent with applicable
Laws, to assist the Trustee in obtaining any required
easements, rights-of-way, licenses, Consents, Permits or other
rights necessary to own, use, sell, operate or otherwise deal
with the Property.
(B) Pack and ship any or all Equipment to such location or
locations within the forty-eight contiguous United States as
the Lessor may direct.
(xv) Receipt by the Lessor in form and substance satisfactory
to the Lessor, the Agent, the B-Note Holders and the Certificate
Holders, in each case, in their sole discretion, of conveyancing,
assignment, transfer, and other documents (including any required
Consents or Permits) that are sufficient to convey to the Lessor (or
its designee) on the Expiration Date title to not less than two Lit
Fibers (including all Network Assets related thereto) that (A)
constitute a communications network and provide continuous end-to-end
and point-to-point signal transmission capacity, (B) have an aggregate
appraised value at least equal to the Appraised Value of the Projects
(utilizing substantially similar appraisal methodologies and
assumptions as used to appraise the Projects) and (C) are conveyed free
of any IRUs or Capacity Leases.
Section 10.06 Survival. The obligations of the Lessee under
this Article X shall survive the expiration or any termination of the Term of
this Lease (whether by operation of Law or otherwise) for all matters described
in this Section which occur or arise prior to such expiration or termination or
arise out of or result from facts, events, claims, liabilities, actions or
conditions occurring, arising or existing on or before such expiration or
termination.
ARTICLE XI
SECURITY
Section 11.01 Characterization. The Lessor and the Lessee
intend that the Lessee shall treat this Lease, for accounting purposes, as an
operating lease. Notwithstanding the intent of the parties, if a court of
competent
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jurisdiction determines that the transaction represented by this Lease, the
other Operative Documents and the Securitization Documents will not be treated
as an operating lease but will be treated as a financing transaction, then the
parties hereto intend that (i) this Lease be treated as a mortgage and security
agreement encumbering the Property given by the Lessee to the Lessor in a
principal amount equal to the cost of acquisition and construction of the
Property plus any other amounts owing to the Lessor, the Agent, the Collateral
Agent, the Note Holders or the Certificate Holders (collectively, the "Secured
Party") under the Operative Documents and the Securitization Documents including
Fixed Rent, Additional Rent and the Termination Value (collectively, the
"Loan"), (ii) all payments of Fixed Rent, Additional Rent and the Termination
Value be treated as payments of principal, interest and other amounts owing with
respect to such Loan, respectively, (iii) the Lessee be treated as entitled to
all benefits of ownership of the Property or any part thereof, and (iv) this
Lease be treated as (x) a mortgage that has, in respect of the Property located
in any state (the "Relevant State"), the terms set forth in Section 11.02 and
(y) a security agreement that has the terms set forth in Section 11.03.
Section 11.02 Mortgage. (a) The Lessee, as mortgagor, hereby
has mortgaged, given, granted, bargained, sold, aliened, enfeoffed, conveyed,
confirmed and assigned and by these presents does hereby forever, mortgage,
give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign unto the
Lessor, as mortgagee, or any successor thereto, for the benefit of the Secured
Party, a continuing lien upon and a security interest in and to all of the
Lessee's right, title and interest in and to the following property rights and
interests:
(i) all of the Property;
(ii) all of the estate, right, title, claim or demand of
any nature whatsoever of the Lessee, either in law or in equity, in
possession or expectancy, in and to the Property or any part thereof;
(iii) all machinery, apparatus, equipment, Parts, fittings,
fixtures and other property of every kind and nature whatsoever and all
additions thereto and renewals and replacements thereof, and all
substitutions therefor now owned or hereafter acquired by the Lessee,
or in which the Lessee has or shall have an interest, now or hereafter
located upon or in, or attached to, any portion of the Property, or
constituting a portion of the Property, or appurtenances thereto, and
the right, title and interest of the Lessee in and to any of the
foregoing which may be subject to any security agreements (as defined
in the Uniform Commercial Code of the State of New York);
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(iv) all awards or payments, including interest thereon,
and the right to receive the same, which may be made with respect to
the Property, whether from the exercise of the right of eminent domain
(including any transfer made in lieu of the exercise of said right), or
for any other injury to or decrease in the value of the Property;
(v) subject to Section 11.02(d), all leases, IRUs and
other agreements affecting the use or occupancy of the Property now or
hereafter entered into and all guaranties of any of the foregoing and
the right to receive and apply the rents, issues and profits of the
Property to the payment of the Loan;
(vi) subject to Section 11.02(d), all right, title and
interest of the Lessee in and to (x) all contracts from time to time
executed by the Lessee or any manager or agent on its behalf relating
to the ownership, demolition, construction, maintenance, repair,
operation, occupancy, sale or financing of the Property or any part
thereof and all agreements relating to the purchase or lease of any
portion of the Property or any property or rights relating to property
which is adjacent or peripheral to the Property (including development
rights and air rights), together with the right to exercise such
options and all leases of Equipment, (y) all consents, licenses,
building permits, certificates of occupancy and other governmental
approvals relating to construction, completion, occupancy, use or
operation of the Property or any part thereof, and (z) all drawings,
plans, specifications and similar or related items relating to the
Property;
(vii) all proceeds, both cash and non-cash, of the
foregoing;
(viii) all proceeds of and any unearned premiums on any
insurance policies covering the Property, including the right to
receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Property; and
(ix) the right, in the name and on behalf of the Lessee, to
appear in and defend any action or proceeding brought with respect to
the Property and to commence any action or proceeding to protect the
interest of the Lessee in the Property.
To have and to hold the above granted and described Mortgaged Property unto and
to the proper use and benefit of the Lessor, and the successors and assigns of
the Lessor, forever.
(b) The Lessee, as mortgagor, hereby confirms that, with
respect to any Property located within a Relevant State,
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the Lessor, as mortgagee, shall have, in addition to all other rights and
remedies provided in this Lease, or any other Operative Document or any
Securitization Documents, all of the rights and remedies with respect to such
Property as are provided:
(i) under the laws of the Relevant State governing
mortgages or deeds of trust; and
(ii) in any mortgage, deed of trust or similar document that
may be filed or recorded in any appropriate filing office in the
Relevant State in connection with the Property and the granting of the
security interest under the Lease; and
(iii) in the supplemental mortgage provisions for the Relevant
State, if any, annexed as Schedule 11.02(b) of this Lease.
(c) Notwithstanding any contrary provision in this Lease, the
amount of the Loan secured by any Property located within a Relevant State, and
the maximum amount that may be applied to pay the Loan from proceeds of any
foreclosure and sale of any Property located within a Relevant State, shall be
subject to the limitations in the supplemental mortgage provisions for the
Relevant State, if any, annexed as Schedule 2 of this Lease.
(d) This Section 11.02 shall not constitute an agreement to
assign, mortgage or otherwise encumber any agreement, contract, license or
interest relating to Real Property if such assignment, mortgage or other
encumbrance, without the Consent of the other party thereto, would constitute a
breach thereof, or would in any material way adversely affect the rights of the
Lessee thereunder; provided, however, that if any such Consent shall not be
obtained or any assignment, mortgage or other encumbrance would be ineffective,
or would impair the Lessee's rights thereunder so that the Lessor would not, in
effect, acquire the benefit of all such material rights, then the Lessee shall
use its best efforts to:
(i) provide to the Lessor the benefits of any such agreement,
contract, license, or interest therein;
(ii) cooperate in any reasonable and lawful arrangement
designed to provide such benefits to the Lessor; and
(iii) enforce, for the account of the Lessor, any rights of
the Lessee thereunder,
it being understood that, except upon return of the Property to the Lessor
pursuant to Section 3.03(a)(ii) or upon other termination of this Lease,
provided that the Lessee or its
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designee does not purchase the Property, such cooperation will not include any
requirement or obligation to pay any consideration, offer or grant any financial
accommodation or other benefit or release any claim or right in the absence of a
Default, Event of Default or Environmental Trigger.
(e) From the date hereof, if the Lessee enters into any new
Real Property Instrument or amends or otherwise modifies any existing Real
Property Instrument, in each case, with respect to a POP, then the Lessee shall
use its best efforts to cause such Real Property Instruments to permit an
assignment of such Real Property Instrument in favor of the Lessor and its
assigns.
Section 11.03 Security Agreement. (a) As security for the
Loan, the Lessee, as debtor, hereby grants to the Lessor, as secured party, for
the benefit of the Secured Party, a security interest in all of the Lessee's
right, title and interest in and to all personal property and all other rights
and interests, whether tangible or intangible in nature, comprising the
Property, whether now owned or hereafter acquired and all cash and non-cash
proceeds (including insurance proceeds) and products thereof (the "Collateral").
(b) If the Lessee shall default hereunder, the Lessor, in
addition to any other rights and remedies which it may have, shall have and may
exercise immediately and without demand, any and all rights and remedies granted
to a secured party upon default under the Uniform Commercial Code as in effect
at such time in New York, including, the right to take possession of the
Collateral or any part thereof, and to take such other measures as the Lessor
may deem necessary for the care, protection and preservation of the Collateral
and to sell, exchange, lease or otherwise realize on or dispose of the
Collateral. Any notice of sale, disposition or other intended action by the
Lessor with respect to the Collateral sent to the Lessee in accordance with the
provisions hereof at least seven days prior to the date of any such sale,
disposition or other action, shall constitute reasonable notice to the Lessee,
and the method of sale or disposition or other intended action set forth or
specified in such notice shall conclusively be deemed to be commercially
reasonable within the meaning of the Uniform Commercial Code unless objected to
in writing by the Lessee within five days after receipt by the Lessee of such
notice. The proceeds of any sale or disposition of the Collateral, or any part
thereof, may be applied by the Lessor to the payment of the Loan in such order,
priority and proportions as the Lessor in its discretion shall deem proper. The
Lessee shall remain liable for any deficiency between the proceeds of any sale
or other disposition of the Collateral and all unpaid amounts owed pursuant to
the Loan. The filing of a copy of this Lease (or a memorandum hereof) shall be
deemed to constitute the filing of a financing statement to perfect the security
interest in
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the Collateral and to secure the payment of all amounts due from time to time
from the Lessee to the Lessor under this Lease, the other Operative Documents
and the Securitization Documents. To the extent permitted by the Uniform
Commercial Code, the Lessor is hereby authorized to file a financing statement
covering the Collateral without the signature of the Lessee, as debtor.
(c) The Lessee, as debtor, hereby confirms that, with respect
to any Property located within a Relevant State, the provisions annexed as
Schedule 11.03(c) of this Lease shall apply.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Notices, Demands and Other Instruments. All
notices, demands, offers, consents and other instruments given pursuant to this
Lease shall be sent to the parties hereto at the addresses set forth on Schedule
I to the Participation Agreement and shall be given in the manner and shall be
effective at the times and under the terms set forth in Section 8.02 of the
Participation Agreement. The Lessee shall send to the Agent copies of all
notices, demands, offers, consents, advices and other instruments hereunder sent
to the Lessor.
Section 12.02 No Default Certificate. Each party hereto shall,
at the reasonable request of the other party hereto, deliver to such other party
a certificate stating whether such first party has knowledge that, or has
received notice from any person that, any Casualty, Condemnation, Default,
Environmental Trigger or Event of Default has occurred and is continuing.
Section 12.03 Severability. Except as expressly provided
otherwise in this Lease, each provision hereof shall be separate and independent
and the breach of any such provision by the Lessee, or a breach of any
obligation hereunder by the Lessor, shall not discharge or relieve the Lessee
from its obligations to perform each and every covenant to be performed by the
Lessee hereunder. If any provision hereof or the application thereof to any
Person or circumstance shall be invalid or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforceable to the extent permitted by Law.
Section 12.04 Binding Effect. All provisions contained in this
Lease shall be binding upon, inure to the
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benefit of and be enforceable by, the respective permitted successors and
assigns of the Lessor and the Lessee to the same extent as if each successor and
assignee were named as a party hereto. Except for subleases and assignments
permitted or created in accordance with Sections 5.07 and 6.08, the Lessee may
not assign its rights hereunder or any interest (by operation of law or
otherwise) herein without the prior written consent of the Lessor. Subject to
the provisions of Section 2.03 of this Lease, the other Operative Documents and
the Securitization Documents, the Lessor may assign all or any part of the
Property and/or its rights under this Lease. All amendments, waivers, consents
or approvals arising pursuant to this Lease shall be consummated in accordance
with the Participation Agreement. Any amendment, waiver, consent or approval
made otherwise than as expressly permitted by this Section 12.04 shall be null
and void.
Section 12.05 Governing Law. THIS LEASE SHALL BE GOVERNED BY
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 12.06 Counterparts. The parties may sign this Lease in
any number of counterparts and on separate counterparts, each of which shall be
an original but all of which when taken together shall constitute one and the
same instrument, except that, if this Lease constitutes "chattel paper" within
the meaning of the UCC only one counterpart stamped or marked "COUNTERPART
NUMBER ONE" or "COUNTERPART NUMBER l" shall constitute, to the extent
applicable, "chattel paper" or other "collateral" within the meaning of the
Uniform Commercial Code in effect in any jurisdiction.
Section 12.07 No Recourse. No recourse shall be had against
the Lessor, the Agent, the Collateral Agent, the Proceeds Trustee, any
Certificate Holder or any Note Holder or their respective successors, assigns,
controlling persons, directors, officers, partners, employees, agents or
shareholders, and their successors and assigns for any claim based on any
failure by the Lessor in the performance or observance of any of the agreements,
covenants or provisions contained in this Lease and in the event of any such
failure, recourse shall be had solely against the Property; provided, however,
that nothing contained in this Lease shall be taken to prevent enforcement of
this Lease or of any claim against the Lessor or any other Person arising out of
or in connection with this Lease based on fraud, gross negligence or willful
misconduct of the Lessor or such other Person.
Section 12.08 Lessor's Right to Cure Lessee's Default. If the
Lessee shall fail to make any payment or perform any act required to be made or
performed under this Lease, the Lessor, without waiving any default or releasing
Lessee from any obligation, may (but shall be under no obligation to) make such
payment or perform such act for the
55
<PAGE> 61
account and at the cost and expense of the Lessee, and may enter upon the
Property for such purpose and take all such action thereon as, at the Lessor's
sole discretion, may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of the Lessee or a breach of the Lessor's covenant for
quiet possession pursuant to Section 2.03. All sums so paid by the Lessor and
all costs and expenses (including reasonable attorneys' fees and expenses so
incurred, together with interest thereon at the Default Rate to the extent
permitted by Law) shall be paid by the Lessee to the Lessor on demand as
Additional Rent.
Section 12.09 Lessee's Right to Contest Property Taxes. The
Lessee, at its own cost and expense and in compliance with Section 6.01(c),
shall have the sole right, at any time, to seek, in good faith, a reduction in
the assessed valuation of the Property or any part thereof or to contest, in
good faith, any real or personal property taxes for the Property or any part
thereof or to contest, in good faith, any dues, fees or assessments payable
under the Declaration. The Lessor shall not be required to join in any
proceeding or contest brought by the Lessee unless the provisions of any Legal
Requirement require that the proceeding or contest be brought by or in the name
of the owner of the Property. In that case the Lessor shall join in the
proceeding or contest or permit it to be brought in the Lessor's name as long as
the Lessee reimburses the Lessor for any and all costs and expenses reasonably
incurred by the Lessor in connection therewith. The Lessee, on a final
non-appealable determination of the proceeding or contest, shall immediately
pay, discharge and satisfy any decision or judgment rendered, together with all
costs, interest and penalties incidental to the decision or judgment.
Section 12.10 Limitations on Amounts Payable. Notwithstanding
anything to the contrary contained in this Lease or any of the other Operative
Documents or the Securitization Documents, the amounts which the Lessee is
obliged to pay, as Fixed Rent pursuant to this Lease, the other Operative
Documents and the Securitization Documents, and the amounts which the Lessor,
the Agent, the Certificate Holders and the Note Holders are entitled to receive
as Fixed Rent pursuant to this Lease, the other Operative Documents and the
Securitization Documents, are subject to limitations pursuant to Section 8.17 of
the Participation Agreement.
Section 12.11 Payments to the Agent. The Lessee hereby
acknowledges, and the Lessor hereby directs, that all payments of Fixed Rent,
Additional Rent and other sums due to the Lessor hereunder shall be made to the
Agent, on behalf of the Lessor, to the account specified for the Agent in
Schedule I to the Participation Agreement.
Section 12.12 Remaining Moneys. Except as otherwise provided
for herein or in the Interparty Agreement,
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any and all moneys remaining, and all residual interests in the Property after
all payments of interest on and principal of the Notes, and all payments of
current yield on and the stated amount of the Certificates, all payments of
other sums due to the parties entitled thereto under the Operative Documents and
the Securitization Documents and all unpaid amounts in respect of Unreimbursed
Losses, have been made in accordance with the Operative Documents and the
Securitization Documents, shall be paid and assigned to the Lessee.
Section 12.13 Waiver of Trial by Jury. IN ANY ACTION OR
PROCEEDING UNDER OR RELATED TO THIS AGREEMENT, THE OPERATIVE DOCUMENTS OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, THE LESSOR AND THE LESSEE
HEREBY AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY, IRRESPECTIVE OF WHICH PARTY COMMENCES SUCH ACTION OR
PROCEEDING.
Section 12.14 Exculpation of Lessor. It is expressly agreed,
anything herein to the contrary notwithstanding, that each and all of the
representations, warranties, covenants, undertakings and agreements herein made
on the part of Lessor are made and intended not as personal representations,
warranties, covenants, undertakings and agreements by Lessor, or for the purpose
or with the intention of binding Lessor, personally, but are made and intended
for the purpose of binding only the Trust Estate and this Lease is executed and
delivered by Lessor not in its own right but solely in the exercise of the
powers expressly conferred upon it as Trustee under the Declaration; and no
personal liability or personal responsibility is assumed by or shall at any time
be asserted or enforceable against Lessor on account of this Lease or on account
of any representation, warranty, covenant, undertaking or agreement of Lessor,
either expressed or implied herein, all such personal liability, if any, being
expressly waived and released by Lessee and by all Persons claiming by, through
or under it, and that all recourse against the Lessor under this Lease shall be
limited to the Trust Estate.
Section 12.15 Prior Lease. This Lease amends, restates,
supplements and replaces, in its entirety, the Lease dated as of May 6, 1998
between the Lessor and the Lessee (the "Prior Lease"); all Property subject to
the Prior Lease shall be Property subject to this Lease as of the date of this
Lease, without further action of any kind on the part of the Lessor or the
Lessee; all amounts owing as Fixed Rent, Additional Rent, indemnity payments or
other amounts under the Prior Lease (whether now due or to become due) shall, to
the extent unpaid on the date hereof, become Fixed Rent, Additional Rent,
indemnity payments or other amounts owing under this Lease; all Property subject
to the Prior Lease shall, from and after the date of this Lease, be governed by
the provisions of this Lease; as of the date of this Lease,
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the Prior Lease shall cease to have any further force or effect, except that any
references to the Prior Lease in any mortgage, financing statement or other
document filed or recorded in any jurisdiction shall be deemed a reference to
this Lease, until such time, if any, as a new mortgage, financing statement,
amendment or other document is executed, delivered, recorded and filed expressly
referring to this Lease; and all Property subject to the Prior Lease shall, for
purposes of this Lease, have an Acquisition Cost, Original Capitalized Cost and
Adjusted Capitalized Cost as set forth on Schedule 12.15.
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<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this Lease
to be duly executed by their respective Officers thereunto duly authorized as of
the date hereof.
LESSOR:
STATE STREET BANK AND TRUST COMPANY OF
CONNECTICUT, NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Trustee
By:
---------------------------------------
Name:
Title:
Witness:
- --------------------------------
Name:
Witness:
- --------------------------------
Name:
STATE OF CONNECTICUT )
: ss.:
COUNTY OF HARTFORD )
On this day of September, 1998, before me personally
came , to me known, who, being by me duly sworn, did
depose and say that he is of the State Street Bank
and Trust Company of Connecticut, National Association, the national banking
association described in and which executed the foregoing instrument; that he
knows the seal of such association; that the seal affixed to such instrument is
such association seal; that it was so affixed by order of the Board of Directors
of such association, and that he signed his name thereto by like order.
Notary Public
59
<PAGE> 65
LESSEE:
WILLIAMS COMMUNICATIONS, INC.
By:
---------------------------------------
Name:
Title:
Witness:
- --------------------------------
Name:
Witness:
- --------------------------------
Name:
STATE OF OKLAHOMA )
: ss.:
COUNTY OF TULSA )
On this day of September, 1998, before me personally
came , to me known, who, being by me duly
sworn, did depose and say that he is the of Williams
Communications, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
----------------------------------------------
Notary Public
60
<PAGE> 66
The undersigned, as Agent, hereby agrees to those provisions
of this Lease applicable to the Agent.
CITIBANK, N.A.
By:
--------------------------------------
Name:
Title:
Witness:
- --------------------------------
Name:
Witness:
- --------------------------------
Name:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of September, 1998, before me personally
came , to me known, who, being by me duly sworn, did
depose and say that he is of Citibank, N.A., the national
banking association described in and which executed the foregoing instrument;
that he knows the seal of such association; that the seal affixed to such
instrument is such association seal; that it was so affixed by order of the
Board of Directors of such association, and that he signed his name thereto by
like order.
----------------------------------------------
Notary Public
61
<PAGE> 67
The undersigned, as Collateral Agent and the Proceeds Trustee
hereby agrees to those provisions of this Lease applicable to the Collateral
Agent and the Proceeds Trustee.
STATE STREET BANK AND TRUST
COMPANY, NATIONAL
ASSOCIATION, not in its
individual capacity but
solely as Collateral Agent
and Proceeds Trustee
By:
---------------------------------------
Name:
Title:
Witness:
- --------------------------------
Name:
Witness:
- --------------------------------
Name:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this day of September, 1998, before me personally
came , to me known, who, being by me duly sworn,
did depose and say that he is of State Street Bank
And Trust Company, National Association, the national banking association
described in and which executed the foregoing instrument; that he knows the seal
of such association; that the seal affixed to such instrument is such
association seal; that it was so affixed by order of the Board of Directors of
such association, and that he signed his name thereto by like order.
----------------------------------------------
Notary Public
62
<PAGE> 68
SCHEDULE 1
Fixed Rent and Additional Rent
Capitalized terms used herein and not defined herein shall
have the meanings assigned to them in the Lease (including terms defined by
reference in the Lease to the other Operative Documents and the Securitization
Documents).
I. Fixed Rent
A. "Fixed Rent" for each Payment Date during the Base Term and
any Renewal Term shall be an amount equal to the sum of:
(A) an amount equal to the sum of:
(x) the product of (i) the Series A Portion of the Original
Capitalized Cost of the Property, multiplied by (ii) the
Applicable Rate for the A-Notes during the period ended on
such Payment Date, plus
(y) the portion of the Fixed Securitization Costs attributable
to the A-Notes for the period ended on such Payment Date;
plus
(B) an amount equal to the sum of:
(x) the product of (i) the Series B Portion of the Original
Capitalized Cost of the Property, multiplied by (ii) the
Applicable Rate for the B-Notes during the period ended on
such Payment Date, plus
(y) the portion of the Fixed Securitization Costs attributable
to the B-Notes for the period ended on such Payment Date;
plus
(C) an amount equal to the product of:
(x) the Series C Portion of the Original Capitalized Cost of
the Property, multiplied by
<PAGE> 69
(y) the Applicable Rate for the Certificates during the period
ended on such Payment Date,
plus
(D) during the Extended Term, if any, an amount equal to the
Amortization Amount for the period ended on such Payment Date,
in each case calculated on the basis of a 360-day year (or 365 days if
the Applicable Rate is calculated by reference to the Base Rate) and
prorated for the actual number of days of such period.
B. The "Original Capitalized Cost" shall mean an amount equal
to the sum of:
(A) the Series A Portion of the Original Capitalized Cost of the
Property, plus
(B) the Series B Portion of the Original Capitalized Cost of the
Property, plus
(C) the Series C Portion of the Original Capitalized Cost of the
Property.
The "Series A Portion" of the Original Capitalized Cost of the
Property is equal to the then outstanding aggregate principal amount of the
A-Notes issued to finance the Acquisition Costs of the Property.
The "Series B Portion" of the Original Capitalized Cost of the
Property is equal to the then outstanding aggregate principal amount of the
B-Notes issued to finance the Acquisition Costs of the Property.
The "Series C Portion" of the Original Capitalized Cost of the
Property is equal to the then outstanding aggregate stated amount of the
Certificates issued to finance the Acquisition Costs of the Property.
C. The "Amortization Amount" for any Payment Date during any
Renewal Term shall be the amount determined pursuant to Section 3.02 of the
Lease (and the appraisal of the Property referred to therein).
II. Additional Rent
A. (1) In addition to such Additional Rent as may otherwise be
payable under the Lease, the Lessee shall pay, without duplication, within five
(5) days of a demand therefor (but subject in all cases to the rights of Lessee
<PAGE> 70
under, and the limitations on such payments contained in, the Operative
Documents and the Securitization Documents) as Additional Rent, without
duplication, all Additional Costs. Promptly after the Lessor receives notice
from any Certificate Holder or Note Holder or any other Person requesting
payment of any Additional Costs to be payable as Additional Rent the Lessor
shall notify Lessee of the same. The failure to provide such notice as to any
Additional Costs shall not affect any Certificate Holder's or any Note Holder's
right to recover Additional Rent for the same.
(2) On the last Business Day of each March, June,
September and December of each year, commencing September 30, 1998 and ending
June 30, 2001, an amount equal to $10,895.83.
(3) On the first Payment Date to occur after the
Completion Date, the Lessee shall pay as Additional Rent, an amount equal to the
Excess Certificate Amount.
B. Upon requesting that Lessee pay Additional Rent pursuant to
paragraph II. A. above, the Lessor shall deliver to the Lessee a certificate in
reasonable detail executed by the Certificate Holders, the Note Holders or such
other Persons requesting payment of Additional Costs, as the case may be,
charging such Additional Rent and (i) setting forth the basis for and the amount
of such Additional Rent, and (ii) in the case of Increased Costs, stating that
such Increased Costs are generally being charged by such Certificate Holder or
Note Holder to other similarly situated Persons under similar arrangements. Such
certificate shall be conclusive and binding for all purposes, absent manifest
error, unless such certificate fails to set forth the information required
above.
<PAGE> 71
SCHEDULE 2.02(b)
Supplemental Use Restrictions
1. The provisions in this Supplemental Section 2.02(b)(1) shall apply to the
Regulated Property described below in:
FLORIDA
1.1. The Regulated Property in Florida subject to the supplemental use
restrictions in this Supplemental Section 2.02(b)(1) is:
All Network Assets located in Florida.
1.2. The Lessee agrees, with respect to the Regulated Property
described in Section 1.1 above, that:
(a) On the date any portion of such Regulated Property becomes
capable of transmission, the Lessee shall secure a certificate
as a telecommunications company from the Florida Public
Service Commission and present to Lessor proof satisfactory to
the Lessor of Lessee's certification.
(b) During the Term, Lessee shall maintain its status as a
certificated telecommunications company in Florida.
<PAGE> 72
SCHEDULE 6.05(i)
ALL-RISK PROPERTY INSURANCE EXCLUSIONS
To be provided.
<PAGE> 73
SCHEDULE 6.05(ii)
GENERAL LIABILITY INSURANCE EXCLUSIONS
To be provided.
<PAGE> 74
SCHEDULE 11.02(b)
Supplemental Mortgage Provisions
FLORIDA
1. Property Description: The Property located in Florida which is subject to
Section 11.01 of this Lease is:
All of the Property purchased pursuant to the MediaOne
Agreement.
2. Supplemental Rights: With respect to the Property described in Item 1 above,
the Lessor shall have the right, if an Event of Default shall have occurred:
(i) to exercise any and all remedies described in the
Participation Agreement or the other Operative Documents.
(ii) to declare the entire unpaid balance of the Notes and all
other obligations of Lessee secured hereby immediately due and payable
without further notice.
(iii) to the extent permitted by law, to take immediate
possession of the Property or any part thereof (which Lessee agrees to
surrender to Lessor) and manage, control or lease same to such person
or persons and exercise all other rights granted pursuant to the Lease.
The taking of possession under this paragraph shall not prevent
concurrent or later proceedings for the foreclosure sale of the
Property as provided elsewhere herein.
(iv) to apply, on ex parte motion to any court of competent
jurisdiction, for the appointment of a receiver and shall be entitled
to the appointment of such receiver as a matter of right, without
regard to the value of the Property as security for the amount of the
Loan, or the solvency or insolvency of any person then liable for the
payment of the amount of the Loan. In addition to the rights of
protection afforded to Lessor by Section 697.07, Florida Statutes
(1997), as amended (and not as an election of remedies), Lessor shall
be entitled, as a matter of strict right and without regard to the
value or occupancy of any security for the obligations secured hereby,
to have a receiver appointed by a court, without notice to Lessee, to
enter upon and take possession of the Property, collect the rents
<PAGE> 75
therefrom and thereof and apply the same as the court may direct, such
receiver to have all the rights and powers permitted under the laws of
Florida. The expenses, including receiver's fees, reasonable attorneys'
fees (including any incurred in appeals), costs and agent's
compensation, incurred pursuant to the powers herein contained shall be
secured hereby. The right to enter and take possession of the Property,
to manage and operate the same, to collect the rents therefrom and
thereof, whether by a receiver or otherwise, shall be cumulative to any
other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Lessor shall
be liable to account only for such rents actually received by Lessor,
whether received pursuant to this paragraph or otherwise. The Lessee
hereby specifically waives the right to object to the appointment of a
receiver as aforesaid and hereby consents that such appointment shall
be made as an admitted equity and as a matter of absolute right to the
Lessor and that the same may be done without notice to the Lessee or
any other defendant to such suit.
(v) to foreclose on the mortgage granted hereby and in case of
sale in an action or proceeding to foreclose and Lessor shall have the
right to sell the Property in parts or as an entirety. It is intended
hereby to give to Lessor the widest possible discretion permitted by
law with respect to all aspects of any such sale or sales.
(vi) to exercise all other remedies available, whether at law
or equity, in such order as Lessor may elect. It shall also not be
necessary that Lessor pay any impositions, premiums or other charges
regarding which Lessee is in default before Lessor may invoke its
rights hereunder. All such other rights and remedies available to
Lessor hereunder shall be cumulative and may be pursued concurrently or
successively. The failure or omission on the part of Lessor to exercise
the option for acceleration of maturity and/or foreclosure or to timely
exercise any other option, right, or remedy conferred upon the Lessor
herein, or the acceptance by Lessor of partial payments hereunder,
shall not constitute a waiver of any default or the right to exercise
any such option, but such option shall remain continuously in force.
Acceleration of maturity, once claimed hereunder by Lessor, at the
option of Lessor, may be rescinded by written acknowledgment to that
2
<PAGE> 76
effect by Lessor, but the tender and acceptance of partial payments
alone shall not, in any way, effect or rescind such acceleration of
maturity. The obtaining of a judgment or decree on the amount of the
Loan, whether in the State of Florida or elsewhere, shall not in any
way affect the lien created hereby upon the Property, and any judgment
or decree so obtained shall be secured hereby to the same extent as the
Loan is now secured.
3. Limitation of Rights: With respect to the Property described in item 1 above,
the following provisions shall apply:
"Notwithstanding anything to the contrary contained in this Lease,
Lessee and Lessor have agreed that the portion of the Property located
in the State of Florida secures only a portion of the amount of the
Loan in the maximum amount of $38,000,000, and that the value of the
Property located in Florida is $38,000,000. Therefore, irrespective of
anything contained in this Lease to the contrary, in the event of
foreclosure and sale of that portion of the Property located in the
State of Florida, the maximum recovery of Lessor in the event of a sale
of that portion of the Property located in the State of Florida to any
purchaser other than Lessor, and the maximum credit allowed toward the
payment of the amount of the Loan in bidding upon the portion of the
Property located in the State of Florida at a foreclosure sale, shall
be $38,000,000, plus such amounts as interest, costs, attorneys' fees
and other monies advanced for insurance premiums, taxes and
preservation of that portion of the Property located in the State of
Florida."
3
<PAGE> 77
SCHEDULE 11.03(c)
Supplemental Security Provisions
FLORIDA
1. Property Description: The Property located in Florida which is subject to
Section 11.03 of this Lease is:
All of the Property purchased pursuant to the MediaOne
Agreement.
2. Supplemental Provisions: With respect to the Property described in Item 1
above:
(a) The Lessee covenants and agrees with the Lessor that from and after
the date of this Lease and until the repayment in full of the Loan:
(i) At any time and from time to time, upon the written
request of the Lessor and at the sole expense of the Lessee, the Lessee
shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as the Lessor
may reasonably deem desirable to obtain the full benefits of this
agreement and of the rights and powers herein granted, including (A)
filing any financing or continuation statements under the Uniform
Commercial Code with respect to the liens and security interests
granted hereunder or under any other Loan Document, (B) transferring
the Collateral to Lender's possession (if such Collateral consists of
documents, instruments or chattel paper or if a security interest in
such Collateral can be perfected only by possession) and (C) to obtain
waivers of liens from landlords and mortgagees. The Lessee also hereby
authorizes the Lessor to file any such financing or continuation
statement without the signature of the Lessee to the extent permitted
by applicable law. The filing of a copy of this Lease (or a memorandum
hereof) shall be deemed to constitute the filing of a financing
statement to perfect the security interest in the Collateral and to
secure the payment of all amounts due from time to time from the Lessee
to the Lessor under this Lease and the other Operative Documents.
(ii) The Lessee shall not change its name, identity or
corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously
<PAGE> 78
misleading within the meaning of Section 9-402(7) of the Uniform
Commercial Code or any other then applicable provision of the Uniform
Commercial Code unless the Lessee shall have given the Lessor at least
thirty (30) days' prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action
in advance) necessary or reasonably requested by the Lessor to amend
such financing statement or continuation statement so that it is not
seriously misleading.
(b) (i) The Lessee hereby irrevocably constitutes and appoints the
Lessor and any authorized officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Lessee
and in the name of the Lessee or in its own name, from time to time in
the Lessor's discretion, for the purpose of carrying out the terms of
this agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this agreement
and, without limiting the generality of the foregoing, hereby grants to
the Lessor the power and right, on behalf of the Lessee, without notice
to or assent by the Lessee, and at any time, to do the following:
(A) in the name of the Lessee, in its own name or otherwise,
take possession of, endorse and receive payment of any checks, drafts,
notes, acceptances, or other instruments for the payment of monies due
under any of the Collateral;
(B) continue any insurance existing pursuant to the terms of
this agreement or any of the other Operative Documents, and pay all or
any part of the premiums therefor and the costs thereof; and
(C) receive payment of any and all monies, claims, and other
amounts due or to become due at any time arising out of or in respect
of any Collateral.
(ii) The Lessee hereby irrevocably constitutes and appoints
the Lessor and any authorized employee, officer or agent thereof, with
full power of substitution, as its true and lawful attorney-in-fact
with full irrevocable power and authority in the place and stead of the
Lessee and in the name of the Lessee
2
<PAGE> 79
or in its own name, from time to time in the Lessor's discretion, for
the purpose of carrying out the terms of this agreement, to take any
and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to
accomplish the purposes of this agreement and, without limiting the
generality of the foregoing, hereby grants to the Lessor the power and
right, on behalf of the Lessee, without notice to or assent by the
Lessee, upon the occurrence and during the continuation of an Event of
Default, to do the following:
(A) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any of the
Collateral;
(B) pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the
Collateral;
(C) effect any repairs or obtain any insurance called for by
the terms of this agreement or any of the other Operative Documents and
pay all or any part of the premiums therefor and costs thereof;
(D) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies
due or to become due thereunder, directly to the Lessor or as the
Lessor shall direct;
(E) settle, compromise or adjust any suit, action, or
proceeding and, in connection therewith, give such discharges or
releases as the Lessor may deem appropriate;
(F) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Lessor for the purpose of collecting any and all
such monies due under any of the Collateral whenever payable;
(G) commence and prosecute any suits, actions or proceedings
of law or equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in
respect of any of the Collateral;
(H) defend any suit, action or proceeding brought against the
Lessee with respect to any of the Collateral if the Lessee does not
defend such suit, action or proceeding or if the Lessor believes that
the Lessee is not pursuing such defense in a manner that will maximize
the recovery with respect to such Collateral; and
3
<PAGE> 80
(I) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with any of the Collateral as fully and
completely as though the Lessor were the absolute owner thereof for all
purposes, and to do, at the Lessor's option and the Lessee's expense,
at any time, or from time to time, all acts and things which the Lessor
reasonably deems necessary to perfect, preserve, or realize upon the
Collateral and the Lessor's security interest therein in order to
effect the intent of this agreement, all as fully and effectively as
the Lessee might do.
(iii) The Lessee hereby ratifies, to the extent permitted by
law, all that said attorneys shall lawfully do or cause to be done by
virtue hereof. The foregoing power of attorney is a power coupled with
an interest and shall be irrevocable until the repayment in full of the
Loan.
(iv) The powers conferred on the Lessor hereunder are solely
to protect the Lessor's security interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Lessor
shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and none of its officers,
directors, employees, agents or representatives shall be responsible to
the Lessee for any act or failure to act, except for their own gross
negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(v) The Lessee also authorizes the Lessor, at any time and
from time to time, to (i) communicate in its own name with any party to
any contract with regard to the assignment of the right, title and
interest of the Lessee in and under such contracts and other matters
relating thereto and (ii) execute, in connection with the exercise of
its remedies provided for herein, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the
Collateral.
(c) (i) If any Event of Default shall occur and be continuing, the
Lessor may exercise in addition to all other rights and remedies
granted to it under this agreement, the other Operative Documents and
under any other instrument or agreement securing, evidencing or
relating to the Loan, all rights and remedies of a secured party under
the Uniform Commercial Code as in effect at such time in the State of
New York (the "Uniform Commercial Code"). Without limiting the
generality of the foregoing, the Lessee expressly agrees that in any
such event the Lessor without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below
of time
4
<PAGE> 81
and place of public or private sale) to or upon the Lessee or any other
Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the Uniform
Commercial Code and other applicable law), may forthwith enter upon the
premises of the Lessee where any Collateral is located through
self-help, without judicial process, without first obtaining a final
judgment or giving the Lessee notice and opportunity for a hearing on
the Lessor's claim or action, and without paying rent to the Lessee,
and collect, receive, assemble, process, appropriate and realize upon
the Collateral, or any part thereof, and may forthwith sell, lease,
assign, give an option or options to purchase, or sell or otherwise
dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or
sales, at any exchange at such prices as it may deem best, for cash or
on credit or for future delivery without assumption of any credit risk.
The Lessor shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or
sales, to purchase for its benefit the whole or any part of said
Collateral so sold, free of any right or equity of redemption, which
equity of redemption the Lessee hereby releases. Such sales may be
adjourned or continued from time to time with or without notice. The
Lessor shall have the right to conduct such sales on the Lessee's
premises or elsewhere and shall have the right to use the Lessee's
premises without charge for such sales for such time or times as the
Lessor deems necessary or advisable.
(ii) The Lessee further agrees, at the Lessor's request, to
assemble the Collateral and make it available to the Lessor at places
which the Lessor shall reasonably select, whether at the Lessee's
premises or elsewhere. Until the Lessor is able to effect a sale,
lease, or other disposition of the Collateral, the Lessor shall have
the right to use or operate the Collateral, or any part thereof, to the
extent that it deems appropriate for the purpose of preserving the
Collateral or its value or for any other purpose deemed appropriate by
the Lessor. The Lessor shall have no obligation to the Lessee to
maintain or preserve the rights of the Lessee as against third parties
with respect to the Collateral while the Collateral is in the
possession of the Lessor. The Lessor may, if it so elects, seek the
appointment of a receiver or keeper to take possession of the
Collateral and to enforce any of the Lessor's remedies with respect to
such appointment without prior notice or hearing. The Lessor shall
apply the net proceeds of any such collection, recovery, receipt,
appropriation,
5
<PAGE> 82
realization or sale, as provided in subsection (d)(iv) hereof, the
Lessee remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after
the payment by the Lessor of any other amount required by any provision
of law, including section 9-504(1)(c) of the Uniform Commercial Code
(but only after the Lessor has received what the Lessor considers
reasonable proof of a subordinate party's security interest), need the
Lessor account for the surplus, if any, to the Lessee. To the maximum
extent permitted by applicable law, the Lessee waives all claims,
damages, and demands against the Lessor arising out of the
repossession, retention or sale of the Collateral except such which may
arise out of the gross negligence or willful misconduct of such party.
The Lessee agrees that ten (10) days' prior notice by the Lessor of the
time and place of any public sale or of the time after which a private
sale may take place is reasonable notification of such matters. The
Lessee shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all
amounts to which the Lessor is entitled, the Lessee also being liable
for any reasonable outside attorneys' fees incurred by the Lessor to
collect such deficiency.
(iii) The Lessee agrees to pay any and all costs of the
Lessor, including, without limitation, reasonable outside attorneys'
fees, incurred in connection with the enforcement of any of its rights
and remedies hereunder.
(iv) Except as otherwise specifically provided herein, the
Lessee hereby waives presentment, demand, protest or any notice (to the
maximum extent permitted by applicable law) of any kind in connection
with this agreement or any of the Collateral.
(v) The proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be applied by the Lessor
upon receipt, in the following order of priorities:
First, the payment in full of reasonable expenses of
the Lessor in connection with such sale, disposition or other
realization, including all expenses, liabilities and advances incurred
or made by the Lessor in connection therewith, including reasonable
outside attorney's fees;
Second, to the payment of accrued but unpaid interest
on the Loan;
6
<PAGE> 83
Third, to the payment of unpaid principal of the
Loan;
Fourth, to the payment of all other obligations
secured hereby until all such other obligations shall have been paid in
full; and
Finally, to payment to the Lessee, or its successors
or assigns, to any other party lawfully entitled thereto, or as a court
of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
(d) The Lessor shall use reasonable care with respect to the Collateral in its
possession or under its control. The Lessor shall not have any other duty as to
any Collateral in its possession or control or in the possession or control of
any agent or nominee of the Lessor, or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. Upon request of the Lessee, the Lessor shall account for any monies
received by the Lessor in respect of any foreclosure on or disposition of the
Collateral.
(e) The Lessor shall not by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Lessor and then only to the extent
therein set forth. A waiver by the Lessor of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Lessor would otherwise have had on any future occasion. No failure to
exercise nor any delay in exercising on the part of the Lessor, any right, power
or privilege hereunder, shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by the Lessor and the Lessee.
3. Limitation of Rights: With respect to the Property described in item 1 above,
the following provisions shall apply:
"Notwithstanding anything to the contrary contained in this Lease,
Lessee and Lessor have agreed that the portion of the Property located
in the State of Florida secures only a portion of the amount of the
Loan in the maximum amount of
7
<PAGE> 84
$38,000,000, and that the value of the Property located in Florida is
$38,000,000. Therefore, irrespective of anything contained in this
Lease to the contrary, in the event of foreclosure and sale of that
portion of the Property located in the State of Florida, the maximum
recovery of Lessor in the event of a sale of that portion of the
Property located in the State of Florida to any purchaser other than
Lessor, and the maximum credit allowed toward the payment of the amount
of the Loan in bidding upon the portion of the Property located in the
State of Florida at a foreclosure sale, shall be $38,000,000, plus such
amounts as interest, costs, attorneys' fees and other monies advanced
for insurance premiums, taxes and preservation of that portion of the
Property located in the State of Florida."
8
<PAGE> 85
SCHEDULE 12.15
Acquisition Cost, Original Capitalized Cost and
Adjusted Capitalized Cost of Certain Property
Subject to Prior Lease
<TABLE>
<S> <C> <C>
1. Acquisition Cost (May 6, 1998): $ 25,772,580.41
2. Original Capitalized Cost.
a. Series A Portion $ 21,903,570.55
b. Series B Portion 2,953,647.37
c. Series C Portion 915,362.49
---------------
d. Total Original Capitalized
Cost (Sept. 2, 1998) $ 25,772,580.41
===============
3. Adjusted Capitalized Cost.
a. Series A Portion $ 21,929,857.84
b. Series B Portion 2,957,249.53
c. Series C Portion 916,916.35
---------------
d. Total Adjusted Capitalized
Cost (Sept. 2, 1998) $ 25,804,023.72
===============
</TABLE>
<PAGE> 86
EXHIBIT A
Form of Certificate of Acceptance
CERTIFICATE OF ACCEPTANCE, dated September 2, 1998, by
Williams Communications, Inc., a Delaware corporation (the "Lessee"). All
capitalized terms used herein, unless defined herein, shall have the respective
meanings set forth in the Amended and Restated Lease, dated as of September 2,
1998 (the "Lease"), among the Lessee and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee (the "Lessor").
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee are parties to the Lease
which provides for, inter alia, the execution and delivery of a Certificate of
Acceptance for the purpose of acknowledging acceptance of specific Items of
Property under the Lease and acknowledging the leasing of such Items of Property
under the Lease in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other
good and sufficient consideration, the Lessor and the Lessee hereby agree as
follows:
1. The Lessor and the Lessee hereby acknowledge and
confirm that the Lessee leases from the Lessor under the Lease the Items of
Property specified in Schedule I hereto.
2. The Lessee hereby confirms to the Lessor that the
Lessee has accepted such Items of Property for all purposes of the Lease as
being in good working order and repair and without defect or inherent vice in
condition, design, operation or fitness for use, and otherwise in full
compliance with the Lease; provided, however, that nothing contained herein or
in the Lease shall in any way diminish or otherwise affect any right the Lessee
may have with respect to such Property against any third party (other than the
Lessor Group).
3. The Lessee hereby confirms to the Lessor that:
(a) Such items of Property do not constitute
Regulated Property.
<PAGE> 87
(b) Schedule 2.02(b) of the Lease is hereby
amended and supplemented by adding thereto the
Supplemental Use Restrictions annexed as
Schedule II to this Certificate of Acceptance.
IN WITNESS WHEREOF, the Lessee has caused this Certificate of
Acceptance to be duly executed on the day and year first above written.
WILLIAMS COMMUNICATIONS, INC.
By:
----------------------------------------
Name:
Title:
ACCEPTED:
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual
capacity, but solely as
Trustee
By:
------------------------------
Name:
Title:
2
<PAGE> 88
Schedule I to the Certificate of Acceptance
<TABLE>
<CAPTION>
Description Cost of Property Appraisal Value
of Property Quantity (per unit) (if any)(1)
- ------------------------ ------------- ------------------ --------------------
<S> <C> <C> <C>
</TABLE>
- --------
(1) Appraised Value as determined by the Appraiser.
<PAGE> 89
1 Schedule II to the Certificate of Acceptance
2 Supplemental Use Restrictions
<PAGE> 90
EXHIBIT B
Fiber Testing Standards
1. General. This exhibit defines the standard procedures for testing and
acceptance of the fiber and splices. In general, the Lessee (or its designee),
will perform all tests. The tests should follow standard industry requirements
and criteria. The Lessee will provide all test data to the Lessor upon request.
2. Initial Construction Testing
A. During initial construction, the Lessee (or its designee) shall use
an optical time domain reflectometer ("OTDR") to test splices and shall use an
OTDR and a 1-km launch reel to test pigtail connectors. Such initial
construction tests shall be uni-directional and performed at 1550 nm.
B. If the loss value of two connectors and the associated pigtail
splice exceeds 1 dB, the Lessee (or its designee) shall break the splice and
re-splice until the loss value is 1.0 dB or less. If the Lessee (or its
designee) is unable to achieve a loss value of 1.0 dB or less after five total
splicing attempts, the splice shall be marked as Out-of-Spec (OOS).
C. If the loss value for a splice, when measured in one direction with
an OTDR, exceeds 0.15 dB, the Lessee (or its designee) shall break the splice
and re-splice until the loss value is 0.15 dB or less, provided that, if the
Lessee (or its designee) is not able to achieve a loss value of 0.15 dB after
three total splicing attempts, then the maximum loss value shall be 0.3 dB. If,
after two additional resplicing attempts, the Lessee (or its designee) is not
able to achieve a loss value of 0.3 dB or less, then the Lessee (or its
designee) shall mark the splice as Out-of-Spec (OOS).
3. End-to-End Testing
A. After the Lessee (or its designee) has established end-to-end
connectivity on the fibers during initial construction, it shall:
o perform bi-directional end-to-end tests,
o test continuity to confirm that no fibers have been "frogged" or crossed in
any of the splice points,
<PAGE> 91
o record loss measurements using a light source and a power meter, and
o take OTDR traces and record splice loss measurements.
B. The Lessee (or its designee) shall perform the bi-directional
end-to-end tests and OTDR traces at both 1310 nm and 1550 nm. The Lessee (or its
designee) shall measure and verify losses for each splice point in both
directions and average the loss values. The Lessee (or its designee) shall mark
any splice points as Out-of-Spec (OOS) that have an average loss value, based on
bi-directional OTDR testing, in excess of 0.3 dB.
4. Post-Construction Testing
After performing permanent resplicing (in conjunction with repair of a
cable cut, replacement of a segment of cable, or other work after initial
installation and splicing of the cable), the test procedures set forth section 2
(End-to-End Testing), shall apply to the relevant fibers and cable segments. The
provisions in sections 4 (OTDR Equipment and Settings) and 5 (Acceptance Test
Deliverables), that are relevant to such testing shall also apply.
5. Out-of-Spec Splices
Out-of-Spec splices shall be noted, but shall not preclude acceptance
of a fiber if the Out-of-Spec condition does not affect transmission capability
(based on use of then-prevailing telecommunications industry standards
applicable to equipment generally used with the relevant type of fiber) or
create a significant possibility of an outage.
6. OTDR Equipment and Settings
A. The Lessee (or its designee) shall use OTDR equipment and settings
that are, in its reasonable opinion, suitable for performing accurate
measurements of the fiber installed. Such equipment and settings shall include,
without limitation, the equipment and settings described below.
B. The Lessee (or its designee) has approved the following OTDRs and
settings for acceptance testing: the Laser Precision TD3000 and CMA4000 models
and compatible models.
C. The Lessee (or its designee) has approved the following settings for
various OTDR tests:
<PAGE> 92
i. Index of refraction settings:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1310 NM 1550 NM
------------------------------ ----------------------
<S> <C> <C>
Lucent Truwave 1.4738 1.4732
Corning SMF-28 1.4675 1.4681
Corning SMF-LS 1.471 1.470
Corning LEAF 1.470 1.469
Sumitomo fiber 1.4670 1.4670
- -------------------------------------------------------------------------------------------------
</TABLE>
ii. Tests of a pigtail connector and its associated splice:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TD3000 CMA4000
--------- -----------
<S> <C> <C>
4 km Range 4 km Range
50 ns Pulse 50 ns Pulse
1 m Resolution 1 m Resolution
Medium Averaging Medium Averaging
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 93
iii. End to End Segment OTDR Testing:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TD3000 CMA4000
------------- ----------------
<S> <C> <C>
64 km Range 100 km Range
500 ns Pulse 250 ns Pulse
4 m Resolution 4 m Resolution
Medium Averaging Medium Averaging
- --------------------------------------------------------------------------------
</TABLE>
Note: If the end points are more than 64 kilometers apart, the Lessee
(or its designee) currently uses a TD3000 set at 128 km range setting
and performs bi-directional testing only at 1550 nm.
7. Acceptance Test Deliverables
The Lessee (or its designee) shall provide data sheets or computer
media containing the following information for the relevant fibers and cable
segments:
A. Verification of end-to-end fiber continuity with power level
readings for each fiber taken with a light source and power meter.
B. Verification of loss at each splice point to be below 0.3 dB as well
as the final bi-directional OTDR test data, with distances.
C. Cable manufacturer, cable type (buffer/ribbon), fiber type, cable
reel number, number of fibers, number of fibers per tube, and distance of each
section of cable between splice points.
<PAGE> 94
Schedule 5
FORM OF IRU AGREEMENT
---------------------
IRU AGREEMENT
BETWEEN
, INC. ("GRANTEE")
-------------------------
AND
WILLIAMS COMMUNICATIONS, INC. ("WILLIAMS")
DATED
--------------------------
( to )
----------------- ------------------
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I DEFINITIONS......................................................................................
II CONVEYANCE OF IRU................................................................................
III CONSIDERATION....................................................................................
IV CONSTRUCTION.....................................................................................
V CONNECTION TO THE SYSTEM AND COLLOCATION VI......................................................
VI ACCEPTANCE AND TESTING OF FIBERS ................................................................
VII SYSTEM ROUTE.....................................................................................
VIII TERM.............................................................................................
IX OPERATION, MAINTENANCE, AND REPAIR OF THE SYSTEM.................................................
X RELOCATION.......................................................................................
XI USE OF THE SYSTEM................................................................................
XII AUDIT RIGHTS.....................................................................................
XIII INDEMNIFICATION..................................................................................
XIV LIMITATION OF LIABILITY..........................................................................
XV INSURANCE........................................................................................
XVI TAXES AND GOVERNMENTAL FEES......................................................................
XVII DISCLAIMER OF WARRANTIES.........................................................................
XVIII NOTICE...........................................................................................
XIX CONFIDENTIALITY..................................................................................
XX DEFAULT..........................................................................................
XXI FORCE MAJEURE....................................................................................
XXII ARBITRATION......................................................................................
XXIII RULES OF CONSTRUCTION............................................................................
</TABLE>
i
<PAGE> 96
<TABLE>
<S> <C> <C>
XXIV ASSIGNMENT.......................................................................................
XXV REPRESENTATIONS AND WARRANTIES...................................................................
XXVI RELATIONSHIP OF THE PARTIES......................................................................
XXVII PROHIBITION ON IMPROPER PAYMENTS.................................................................
XXVIII ENTIRE AGREEMENT; AMENDMENT; EXECUTION...........................................................
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Williams System Route Map
Exhibit B Collocation Agreement
Exhibit C Fiber Splicing, Testing and Acceptance Standards
Exhibit D Fiber Specifications
Exhibit E Cable Installation Specifications
Exhibit F Transmission Site Specifications
Exhibit G AsBuilt Drawing Specifications
Exhibit H Operations Specifications
</TABLE>
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IRU AGREEMENT
(__________________ to _________________)
THIS IRU AGREEMENT (this "Agreement") is made, as of the Effective Date
(hereafter defined), by and between ________________________________
("Grantee"), a ___________ corporation having its principal office at
________________________, _______________ and WILLIAMS COMMUNICATIONS, INC.
("Williams"), a Delaware corporation, having its principal office at One
Williams Center, Tulsa, Oklahoma 74172.
W I T N E S S E T H:
WHEREAS, Williams has constructed or will construct or obtain rights of
use in a fiber optic communication system (the "System") along the route
depicted in Exhibit A hereto (the "Route"); and
WHEREAS, Grantee desires to acquire from Williams, and Williams desires
to provide to Grantee, an exclusive, indefeasible right to use certain optical
fibers in the System along the Route as hereafter described upon the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms and phrases used in this Agreement shall have the
following meanings:
"Acceptance Date" means the date defined in Section 6.6 below.
"Acceptance Standards" means the standards set forth in Exhibit C with
respect to the testing and condition of the Grantee Fibers.
"Affiliates" means, with respect to any entity, an entity controlling,
controlled by, or under common control with such entity by means of
direct or indirect majority equity ownership.
"Agreement" shall have the definition set forth in the first paragraph
of this document.
"Cable" means the fiber optic cable installed pursuant to this
Agreement as part of the System (including any replacement cable) and
fibers contained therein, including the Grantee Fibers, and associated
splicing connections, splice boxes and vaults, and conduit.
"Claim" means any claim, action, dispute, or proceeding of any kind
between the Grantee (or any of its Affiliates, successors or assigns)
and Williams (or any of its Affiliates, successors, or assigns) and any
other claim, transaction, occurrence, loss, liability, expense or other
matter arising out of, in connection with, or in any way related to,
the Grantee IRU, the Cable, the System, this Agreement or any other
instrument, arrangement or understanding related to the Grantee IRU.
"Claimant" shall have the definition set forth in Section 13.1.
"Collocation Agreement" means Exhibit B or an executed agreement in the
form of Exhibit B, as the context indicates.
"Connecting Point" means a point where the network or facilities of
Grantee will connect to the System.
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"Contract Price" shall have the definition set forth in Section 3.1.
"Costs" means actual, direct costs incurred and computed in accordance
with the established accounting procedures used by Williams to bill
third parties for reimbursable projects. All Costs shall be computed in
accordance with generally accepted accounting principles. Such actual,
direct costs include, without limitation, the following:
(a) Labor costs, including wages and salaries, and
benefits and overhead allocable to such labor costs
(overhead allocation percentage shall not exceed the
lesser of: (i) the percentage Williams allocates to
its internal projects; or (ii) one hundred thirty
percent (130%)); and
(b) Other direct costs and outofpocket expenses on a
passthrough basis (such as equipment, materials,
supplies, contract services, costs of capital,
Required Rights, sales, use or similar taxes, etc.).
"Deadline Date" shall have the definition set forth in Section 4.2.
"Effective Date" means the date on which this Agreement has been fully
executed by both parties.
"Facility Owners/Lenders" shall mean any entity (other than Williams):
(a) owning any portion of the System or any property or security
interest therein, (b) leasing to Williams, or providing an IRU to
Williams in, any portion of the System, or (c) that is a Lender with
respect to Williams or any Affiliates of Williams.
"Fiber Acceptance Testing" means the fiber acceptance testing described
in Exhibit C and in Article VI.
"Fibers" means any optical fibers contained in the System including the
Grantee Fibers, the fibers of Williams and the fibers of any third
party in the System excluding, however, any fibers granted (whether
through ownership, IRU, lease, or otherwise) to governmental entities
in exchange for use of streets, rights of way, or other property under
the jurisdiction of such entity.
"Force Majeure Event" shall have the definition set forth in Article
XXI.
"Grantee" means _________________, Inc., a _________ corporation.
"Grantee Equipment" shall mean optronic (opto-electrical), electronic,
or optical equipment, or materials, facilities, or other equipment
owned, possessed, or utilized (other than the System), by Grantee.
"Grantee Fibers" means those certain fibers described in Article II and
in which Grantee shall be granted an IRU hereunder.
"Grantee IRU" shall have the definition set forth in Article II.
"Indefeasible Right of Use" or "IRU" is an exclusive, indefeasible
right to use the specified property. The grant of an IRU does not
convey title or ownership of the covered property nor any interest in
real or personal property.
"Indemnitor" shall have the definition set forth in Section 13.1.
"Initial Term" shall have the definition set forth in Section 8.1.
"Lenders" shall have the definition set forth in Section 2.2.
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"Non-Routine Maintenance" shall have the definition set forth in
Section 9.1
"Pro-Rata Share" means a proportion equal to a fraction, the numerator
of which is the number of Grantee Fibers and the denominator of which
is all other Fibers in the Cable. If this fraction varies over
different portions of the System, then the Pro Rata Share shall be
equal to the weighted average (weighted by length as set forth in
Williams' as-built drawings) of the relevant portions. For example, if
the fraction for 100 feet of the affected Segment is 0.1 and the
fraction for the remaining 50 feet of the affected Segment is 0.07, the
weighted average for the entire Segment would be 0.09.
"Released Party" shall mean each of the following:
(a) any Affiliates, Lenders, and Facility Owners/Lenders
of the other party;
(b) any employee, officer, director, stockholder,
partner, member, or trustee of the other party or of
its Affiliates, Lenders, or Facility Owners/Lenders;
or
(c) assignees of the entities included in the above
subparagraphs (a) or (b) and any employee, officer,
director, stockholder, partner, member, or trustee of
such assignees.
"Representatives" shall have the definition set forth in Section 19.2.
"Required Rights" shall have the definition set forth in Section 7.1.
"Right-of-way Agreements" means rights, licenses, authorizations,
easements, leases, fee interests, or agreements that provide for the
occupancy by the System of real property or fixtures (such as conduit,
bridges, river crossings, or transmission towers).
"Route" shall have the meaning set forth in the Recitals above.
"Route Miles" means the actual miles traversed by the Cable (including
spurs) based on the asbuilt drawings.
"Routine Maintenance" shall have the definition set forth in Section
9.1.
"Segment" means a discrete portion of the System and may refer to a
span (a portion of the System between two Transmission Sites or between
a Transmission Site and a point of presence or System end point), a
portion between two points of presence or a point of presence and a
System end point, or a portion of the System affected by a relocation
or other circumstance.
"System" shall have the meaning set forth in the Recitals above.
"Term" means the term of this Agreement as defined in Section 8.1,
including the Initial Term and any effective extension of the Initial
Term.
"Transmission Sites" shall mean the optical amplifier, regenerator, and
junction sites along the Route associated with the Cable.
"Williams" means Williams Communications, Inc., a Delaware corporation,
formerly known as Vyvx, Inc.
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ARTICLE II
CONVEYANCE OF IRU
2.1 Effective as of the Acceptance Date, Williams hereby grants to
Grantee an exclusive Indefeasible Right of Use, for the purposes described
herein, in those certain _________ (__) strands of Fibers meeting the
specifications set forth in Exhibit D (the "Grantee Fibers") in the Cable on the
terms and subject to the conditions set forth herein (the "Grantee IRU"). Such
grant of an IRU does not convey any legal title to any real or personal
property, including the Fibers, the Cable, or the System. Grantee's IRU does not
include any equipment used to transmit capacity over or "light" the Fibers.
2.2 Either party shall have the right directly or through an Affiliate,
to enter into financing arrangements (including secured loans, leases, sales
with lease-back, or leases with lease-back arrangements, purchase-money or
vendor financing, conditional sales transactions, or other arrangements) with
one or more financial institutions, vendors, suppliers or other financing
sources (individually and collectively, "Lenders"), that, with respect to
Williams, relate to the System and, with respect to Grantee, relate to Grantee's
IRU rights (and not to any property right in the System).
ARTICLE III
CONSIDERATION
3.1 Grantee shall pay Williams the amount of $____________ per Route
Mile of the Grantee Fibers (the "Contract Price"), payable as follows:
(a) An initial deposit of ____ percent (__%) of the estimated
Contract Price, as determined by multiplying the Contract
Price by the total estimated Route Miles of the Cable, as set
forth on Exhibit A, shall be due three (3) banking days after
execution hereof.
(b) The remainder of the estimated Contract Price shall be due
five (5) banking days after the Acceptance Date.
3.2 At the time Williams provides Grantee the as-built drawings
pursuant to Section 7.2, it shall also provide Grantee with a statement of the
actual Route Miles and any amount to be paid by Williams to Grantee or by
Grantee to Williams to reflect any difference between the Contract Price (as
computed based on actual Cable Route Miles) and the estimated Contract Price.
Williams shall pay to Grantee (if the amounts Grantee paid exceed the Contract
Price) or Grantee shall pay to Williams (if the amounts Grantee paid are less
than the Contract Price) the difference between the estimated Contract Price and
the actual Contract Price within ten (10) days of the delivery of such
statement.
3.3 Grantee shall make all payments to Williams set forth in this
Article by wire transfer of immediately available funds to the United States
account or accounts designated by Williams. All other payments to be made
pursuant to this Agreement may be made by check or draft of immediately
available funds delivered to the address designated in writing by the other
party (e.g., in a statement or invoice) or, failing such designation, to the
address for notice to such other party provided pursuant to Article XVIII.
ARTICLE IV
CONSTRUCTION
4.1 Williams warrants and represents that, upon the Acceptance Date,
the System shall be designed, engineered, installed, and constructed in
accordance with the specifications set forth in Exhibits C, D, E, and F.
4.2 The planned Acceptance Date is ________________. The Deadline Date
shall be the later of one hundred eighty (180) days after (a) such planned
Acceptance Date or (b) the planned Acceptance Date as extended
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due to events described in Article XXI or as expressly permitted by this
Agreement. If the Acceptance Date does not occur by the Deadline Date, then
Grantee's payment obligation set forth in Section 3.1(b) shall be reduced by ten
thousand dollars ($10,000) per month for each month (pro-rated for partial
months) until the Acceptance Date occurs. Such reduction shall not exceed a
total of sixty thousand dollars ($60,000) (i.e., no further reductions shall
apply after the sixth (6th) month following the Deadline Date).
4.3 If the Acceptance Date does not occur within one hundred eighty
(180) days of the Deadline Date, Grantee may terminate the Agreement by notice
to Williams. Such notice shall specify whether Grantee elects to:
(a) have Williams refund the amounts paid by Grantee
pursuant to Article III, in which case, as Grantee's
exclusive remedy for such non-occurrence, Williams
shall refund such amounts within thirty (30) days of
receipt of such notice together with interest as
provided in Section 20.3, and the parties shall have
no further obligations under this Agreement; or
(b) pursue any available remedies (excluding those
remedies provided in Sections 4.2 and Subsection
4.3(a)), subject to the provisions of this Agreement.
ARTICLE V
CONNECTION TO THE SYSTEM AND COLLOCATION
5.1 Subject to the provisions herein, Grantee shall pay for and arrange
all connections of its facilities with the Grantee Fibers. Grantee shall
reimburse Williams for any Costs incurred within thirty (30) days after receipt
of Williams' invoice therefor. Such connections shall be made only as set forth
in Exhibits B or H.
5.2 Grantee shall have the right to use Transmission Sites along the
Route pursuant to the terms of a Collocation Agreement in the form set forth as
Exhibit B. Such Transmission Sites shall meet or exceed the power and building
requirements specified in Exhibit F. Grantee shall provide, maintain, and for
all purposes be solely responsible for all Grantee Equipment at Transmission
Sites or other locations.
ARTICLE VI
ACCEPTANCE AND TESTING OF FIBERS
6.1 Williams shall test the Grantee Fibers in accordance with Exhibit C
("Fiber Acceptance Testing"). Fiber Acceptance Testing shall progress Segment by
Segment along the Route as cable splicing progresses, so that test results may
be reviewed in a timely manner. Grantee shall have the right, but not the
obligation, to have an individual present to observe the Fiber Acceptance
Testing (except to the extent such testing takes place prior to the period
ending fourteen (14) days after the Effective Date) and Williams shall provide
Grantee prior notice of Williams' testing schedule. Within fourteen (14) days
after the conclusion of any Fiber Acceptance Testing of the Grantee Fibers
conducted by Williams in any given Segment (or, if later, within fourteen (14)
days of the Effective Date), Williams shall provide Grantee with a copy of the
test results.
6.2 Grantee shall have the right, but not the obligation, at its sole
expense, to conduct its own Fiber Acceptance Testing of the Grantee Fibers to
verify that they meet the standards set forth in Exhibit C. If Grantee elects to
conduct its own Fiber Acceptance Testing of the Grantee Fibers, it shall notify
Williams of its intent to do so (including dates and locations) during or prior
to the above ten (10) day review period and shall complete such testing within
fourteen (14) days after such notice to Williams. Williams shall have the right,
but not the obligation, to have an individual present to observe Grantee's Fiber
Acceptance Testing. Within fourteen (14) days after the conclusion of Grantee's
Fiber Acceptance Testing of the Grantee Fibers, Grantee shall provide Williams
with a copy of the test results. Grantee's exercise or non-exercise of its right
to conduct Fiber Acceptance Testing shall not extend or shorten the time periods
for Grantee to determine, pursuant to Section 6.3, if the Fibers meet the
Acceptance Standards.
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6.3 If, within ten (10) days after receipt by Grantee from Williams of
the test results referred to in Section 6.1 or of the results of retesting as
set forth below, Grantee reasonably determines that Williams' or Grantee's test
results show that the Grantee Fibers do not meet the Acceptance Standards,
Grantee shall, within such ten (10) day period, notify Williams of such
determination and shall identify in writing the specific data that indicate such
failure to meet the Acceptance Standards.
6.4 Upon receiving notice pursuant to Section 6.3 that the Grantee
Fibers do not meet the Acceptance Standards, Williams shall either:
(a) expeditiously take such action as shall be reasonably
necessary with respect to such portion of the Grantee Fibers
to cause such portion of the Grantee Fibers to meet the
Acceptance Standards and then re-test the Grantee Fibers in
accordance with the provisions of this Article; or
(b) notify Grantee that Williams disputes Grantee's determination
that the Grantee Fibers do not meet the Acceptance Standards.
After taking corrective actions and retesting the Grantee Fibers, Williams shall
provide Grantee with a copy of the new test results and Grantee shall again have
all rights provided in this Article with respect to such new test results. The
cycle described above of testing, taking corrective action and retesting shall
take place until the Grantee Fibers meet the Acceptance Standards.
6.5 If Williams provides notice to Grantee pursuant to Subsection
6.4(b), the parties shall agree upon on a mutually acceptable fiber optic
testing company and such company shall re-test the Grantee Fibers. If the
testing company, after testing the Grantee Fibers, determines that the Grantee
Fibers meet the Acceptance Standards, then Grantee shall pay the testing
company's charges for performing the testing and the Grantee shall be deemed to
have accepted the relevant portion of the Grantee Fibers. If the testing
company, after testing the Grantee Fibers, determines that the Grantee Fibers do
not meet the Acceptance Standards, then Williams shall pay the testing company's
charges for performing the testing and shall perform the corrective action and
re-testing set forth in Subsection 6.4(a).
6.6 If Grantee does not object to the results of any of Williams' Fiber
Acceptance Testing or its own Fiber Acceptance Testing by written notice within
the time periods specified in Section 6.3, Grantee shall be deemed to have
accepted the Grantee Fibers. The date of Grantee's notice accepting the Grantee
Fibers or the date of deemed acceptance under this Section for the last Segment
to be accepted shall be the "Acceptance Date" of the Grantee Fibers.
ARTICLE VII
SYSTEM ROUTE
7.1 As of the Acceptance Date Williams represents that:
a Williams or the underlying facility owner for any
portion of the System shall have obtained all
Right-of-way Agreements necessary for the
installation and use of the System hereunder; and
a Williams shall have obtained by IRU agreement, lease,
or otherwise the right to use portions of the System
it does not own.
The rights Williams is required to obtain pursuant to Subsections (a) and (b)
above are referred to as "Required Rights."
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7.2 Within six (6) months after the Acceptance Date, Williams shall
provide Grantee with asbuilt drawings for the System complying with the
specifications for asbuilt drawings set forth in Exhibit G.
ARTICLE VIII
TERM
8.1 The Term of this Agreement shall begin on the Effective Date and
shall end on _______________________ (the "Initial Term"). Subject to the
conditions set forth below, Grantee may, by written notice, extend the Term for
an additional ten (10) year period. Grantee shall provide the written notice at
least one year in advance of the date the Term would expire absent such notice.
8.2. Grantee may not exercise its right to extend the Agreement if, at
least six months prior to the date of the proposed extension of the Term,
Williams, based on its reasonable opinion, notifies Grantee that Williams has
determined that continued operation of the System or Williams' continued
performance under this Agreement during such extension would be commercially
impracticable because:
(a) the terms and conditions of any Required Rights will
not permit it to perform its obligations under this
Agreement during the extended Term and that it is not
commercially practicable to renew such Required
Rights permitting such performance during such
extended Term;
(b) the costs of continued use of Required Rights is in
excess of that which is commercially reasonable for
the System;
(c) operation or maintenance of the System will not be
technically practicable during such extended Term; or
(d) the Pro-Rata Share of Routine Maintenance Costs
exceeds the charges for Routine Maintenance (as
adjusted pursuant to Section 9.2) by more than twenty
percent (20%).
8.3. If Williams determines that continued performance under this
Agreement during a requested extension would be commercially impracticable,
Williams shall (a) assign its rights and obligations under this Agreement to an
entity that agrees to the requested extension, (b) offer to convey the Cable to
Grantee, (c) offer to convey the Grantee Fibers to Grantee, (d) offer to allow
Grantee, alone or together with other entities holding IRUs or ownership
interests in the System, to operate and maintain the System at Grantee's or such
entities' sole cost, or (e) propose refurbishment of the System if Williams
determines in its reasonable opinion that such refurbishment would be
cost-effective.
8.4 If Williams proposes refurbishment of the System, pursuant to
Subsection 8.3(e), it shall provide Grantee notice of such proposal at least one
hundred twenty (120) days prior to the date the Term would expire absent any
extension. The notice shall describe the refurbishment, state whether Williams
personnel or a contractor will perform the work, and provide an estimate of the
expected Costs thereof. Grantee shall, within thirty (30) days of receiving such
notice, notify Williams whether Grantee elects to participate in such
refurbishment. If Grantee so elects, the Term shall be extended and Grantee
shall reimburse Williams for its Pro-Rata Share of the Costs that are incurred.
If Grantee elects to participate in such refurbishment Williams shall provide
Grantee with monthly progress reports. Grantee shall pay its Pro-Rata Share of
the Costs from time to time within thirty (30) days of receipt of Williams'
invoices therefor.
8.5. Williams shall renew or replace existing Right-of-Way Agreements,
IRUs, or other underlying rights to continue to maintain the System in place
through at least the Initial Term.
8.6. No termination of this Agreement shall affect the rights or
obligations of any party hereto:
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(a) With respect to any payment hereunder for services rendered
prior to the date of termination;
(b) Pursuant to Articles XII, XIII, XIV, XV, XVI, XIX, XXII, and
XXIII entitled Audit Rights; Indemnification; Limitation of
Liability; Insurance; Taxes and Governmental Fees;
Confidentiality; Arbitration; and Rules of Construction,
respectively; or
(c) Pursuant to other provisions of this Agreement that, by their
sense and context, are intended to survive termination of this
Agreement.
ARTICLE IX
OPERATION, MAINTENANCE, AND REPAIR OF THE SYSTEM
9.1 During the Term of this Agreement, Williams shall perform all
required Routine Maintenance and Non-Routine Maintenance. "Non-Routine
Maintenance" means maintenance and repair work that Williams is obligated to
provide under this Agreement other than:
(a) The work specifically identified as Routine Maintenance in
Exhibit H;
(b) Work in which the aggregate amount of Costs incurred as a
result of any single event or multiple, closely related events
is less than or equal to five thousand dollars ($5,000.00); or
(c) Work for which Grantee is obligated to reimburse Williams for
all or a portion of the Costs incurred pursuant to other
Articles of this Agreement or a Collocation Agreement.
"Routine Maintenance" means maintenance and repair work that Williams is
obligated to provide under this Agreement and that is described in Subsections
9.1(a) or 9.1(b).
9.2 Grantee shall pay Williams _______________ dollars ($__.00) per
Route Mile per month throughout the Term of this Agreement for Routine
Maintenance. This amount shall be adjusted once each calendar year on a date
selected by Williams to reflect cumulative changes in the U.S. Producer Price
Index (Bureau of Labor Statistics "Finished Goods" Series - ID WPUSOP3000) since
the Acceptance Date, provided that in no event shall the above amount be less
than _________ dollars ($___.00) per Route Mile per month. Grantee shall pay
such amounts on or before the first day of each calendar month during the Term.
Payments shall be prorated, as necessary, for the first and last months of the
Term.
9.3 At the time Williams provides Grantee a statement of the actual
Route Miles pursuant to Section 3.2, it shall provide Grantee a statement of any
amount to be paid by Williams to Grantee or by Grantee to Williams to reflect
any difference between the Routine Maintenance charges (as computed based on
actual Cable Route Miles) and the estimated Routine Maintenance charges.
Williams shall pay to Grantee (if the cumulative amounts Grantee paid exceed the
estimated Routine Maintenance charges) or Grantee shall pay to Williams (if the
cumulative amounts Grantee paid are less than the estimated Routine Maintenance
charges) the difference the estimated Routine Maintenance charges and the actual
Routine Maintenance charges within ten (10) days of the delivery of such
statement.
9.4 Grantee shall pay its Pro-Rata Share of Williams' Costs of
performing Non-Routine Maintenance within thirty (30) days after receipt of
Williams' invoice therefor. Notwithstanding the foregoing, Williams shall repair
any damage caused by Grantee's negligence or willful misconduct at Grantee's
sole expense and at Williams' then-prevailing rates.
9.5 Williams may subcontract for maintenance, repair, restoration,
relocation, or other operational and technical services it is obligated to
provide hereunder or may have the underlying facility owner or its contractor
perform such obligations.
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9.6 Williams' maintenance and repair obligations under this Agreement
shall not include maintenance, repair or replacement of Grantee Equipment.
9.7 Grantee shall not access any part of the System (other than
pursuant to an executed and effective Collocation Agreement) without the prior
written consent of Williams, and then only upon the terms and conditions
specified by Williams.
ARTICLE X
RELOCATION
10.1 If, following the Acceptance Date, Williams determines in its
reasonable business judgment, or is required by a third party with legal
authority to do so, to relocate all or any portion of the System or any of the
facilities used or required in providing Grantee with the Grantee IRU, Williams
shall provide Grantee sixty (60) days' prior notice of any such relocation, if
possible, and shall proceed with such relocation. Williams shall have the right
to direct such relocation, including, but not limited to, the right to determine
the extent of, the timing of, and methods to be used for such relocation;
provided that any such relocation:
(a) Shall be constructed and tested in accordance with the
specifications and requirements set forth in this Agreement
and applicable Exhibits;
(b) Shall not result in a materially adverse change to the
operations, performance, Connecting Points with the network of
Grantee, or end points of the System; and
(c) Shall not unreasonably interrupt service on the System.
10.2 Unless such relocation is necessitated by a breach of Williams'
obligations under this Agreement, Grantee shall reimburse Williams for the Costs
incurred in the same manner as is set forth for reimbursement of Non-Routine
Maintenance Costs in Section 9.4.
10.3 At Grantee's request, Williams shall deliver to Grantee updated
asbuilt drawings with respect to a relocated portion of the System within the
later of one-hundred eighty (180) days following the completion of such
relocation or thirty (30) days after receipt of Grantee's request.
ARTICLE XI
USE OF THE SYSTEM
11.1 Grantee may use the Grantee Fibers for any lawful purpose.
Williams shall have no right to use the Grantee Fibers during the Term except in
the event of a Grantee default.
11.2 Grantee shall promptly notify Williams of any matters pertaining
to any damage or impending damage to or loss of System that are known to it and
that could reasonably be expected to adversely affect the System.
11.3 Grantee shall take all reasonable precautions against, and shall
assume liability for, subject to the terms of this Agreement, any damage caused
by Grantee to the System or to fibers used or owned by Williams or third
parties.
11.4 Grantee shall not use equipment, technologies, or methods of
operation that interfere in any way with or adversely affect the System or the
use of the System by Williams or third parties or their respective Fibers,
equipment, or facilities associated therewith.
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11.5 Grantee shall not cause or permit any part of the System to become
subject to any mechanic's lien, materialman's lien, vendor's lien, or any
similar lien whether by operation of law or otherwise. If Grantee breaches its
obligations under this Section, it shall immediately notify Williams in writing,
shall promptly cause such lien to be discharged and released of record without
cost to Williams, and shall indemnify Williams against all costs and expenses
(including reasonable attorneys' fees and court costs at trial and on appeal)
incurred in discharging and releasing such lien.
ARTICLE XII
AUDIT RIGHTS
12.1 Each party shall keep such books and records (which shall be
maintained on a consistent basis and substantially in accordance with generally
accepted accounting principles) as shall readily disclose the basis for any
charges (except charges fixed in advance by this Agreement or by separate
agreement of the parties) or credits, ordinary or extraordinary, billed or due
to the other party under this Agreement and shall make them available for
examination, audit, and reproduction by the other party and its agents for a
period of one (1) year after such charge or credit is billed or due.
ARTICLE XIII
INDEMNIFICATION
13.1 Each party ("Indemnitor") hereby releases and shall indemnify,
defend, protect, and hold harmless the other party, its employees, members,
managers, officers, agents, contractors, Facility Owners/Lenders, and Affiliates
(collectively and individually, "Claimant"), from and against, and assumes
liability for:
(a) Any injury, death, loss, or damage to any person, tangible
property, or facilities of any entity (including reasonable
attorneys' fees and costs at trial and appeal), to the extent
arising out of or resulting from the acts or omissions,
negligent or otherwise, of Indemnitor, its officers,
employees, servants, Affiliates, agents, contractors, or
underlying facility owners or from any entity for whom it is
in law responsible, or otherwise resulting from, arising in
connection with or relating to its performance (including
breach or failure thereto) under this Agreement;
(b) Any claims, liabilities or damages arising out of any
violation by Indemnitor of regulations, rules, statutes, or
court orders of any local, state, or federal governmental
agency, court, or body in connection with its performance
under this Agreement or otherwise; or
(c) Any liability to a third party arising directly or through one
or more intermediate parties, from an action or claim brought
by the Indemnitor, to the extent such third party has a right
of indemnification, impleader, crossclaim, contribution, or
other right of recovery against the Claimant for any indirect,
special, or consequential damages of the Indemnitor.
13.2 Each party's obligation to indemnify, defend, protect, and save
the Claimant harmless is a material obligation to the continuing performance of
the other party's obligations hereunder. The obligations of this Article shall
survive the expiration or earlier termination of this Agreement. The provisions
of Article XV shall not be construed as limiting the Indemnitor's obligations
pursuant to this Article or other provisions of this Agreement.
ARTICLE XIV
LIMITATION OF LIABILITY
14.1 NEITHER PARTY NOR ANY CLAIMANT (AS DEFINED ABOVE) AFFILIATED WITH
OR IN A CONTRACTUAL RELATIONSHIP WITH A PARTY SHALL BE LIABLE TO THE OTHER PARTY
FOR
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SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR
DAMAGES AS A RESULT OF THE PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS
UNDER THIS AGREEMENT, OR ITS ACTS OR OMISSIONS RELATED TO THIS AGREEMENT OR ITS
USE OF THE SYSTEM, WHETHER OR NOT ARISING FROM SOLE, JOINT OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF LAW.
14.2 Notwithstanding the provisions of Section 14.1 or any other
provision of this Agreement:
(a) except as set forth in Subsection 14.2(b), the limitations on
liability set forth in Section 14.1 shall apply to claims of a
party or third party arising from any defect, error,
interruption, delay, or attenuation of any telecommunications
service, capacity, data, or transmission; and
(b) liability arising from Grantee's failure to comply with the
provisions of Section 14.5 shall not be subject to the limits
on liability set forth in Section 14.1.
14.3 Neither party shall have any recourse of any kind against any
Released Party or any assets of a Released Party in respect of any Claim, it
being expressly agreed and understood that no liability whatever shall attach to
or be incurred by any Released Party in respect of any Claim under or by reason
of this Agreement or any other instrument, arrangement or understanding related
to the Grantee IRU. Each party waives all such recourse to the extent set forth
in this Section on behalf of its successors, assigns, and any entity claiming
by, through, or under such party.
14.4 Except as provided in Subsection 13.1(c) and Section 14.3, nothing
contained herein shall operate as a limitation on the right of either Williams
or Grantee to bring an action or claim for damages against any third party
(other than a Claimant affiliated with or in a contractual relationship with the
other party), including indirect, special, or consequential damages, based on
any acts or omissions of such third party as such acts or omissions may affect
the construction, operation or use of such party's fibers or the System. Each of
Williams and Grantee shall assign such rights of claims, execute such documents
and do whatever else may be reasonably necessary to enable the other (at such
other party's sole expense) to pursue any such action against such third party.
14.5 Grantee, in any contract or tariff offering of service, capacity,
or rights of use that in any of the preceding instances involves use of the
System, shall include in such contract or tariff a written limitation of
liability that is binding on Grantee's customers and in all material respects at
least as restrictive as the limitations set forth in Sections 14.1 and 14.3.
ARTICLE XV
INSURANCE
15.1 During the term of this Agreement, the parties shall each obtain
and maintain not less than the following insurance:
(a) Commercial General Liability Insurance, including coverage for
sudden and accidental pollution legal liability, with a
combined single limit of $10,000,000 for bodily injury and
property damage per occurrence and in the aggregate.
(b) Worker's Compensation Insurance in amounts required by
applicable law and Employers Liability Insurance with limits
not less than $1,000,000 each accident. If work is to be
performed in Nevada, North Dakota, Ohio, Washington, Wyoming
or West Virginia, the party shall participate in the
appropriate state fund(s) to cover all eligible employees and
provide a stop gap endorsement.
(c) Automobile Liability Insurance with a combined single limit of
$2,000,000 for bodily injury and property damage per
occurrence, to include coverage for all owned, nonowned, and
hired vehicles.
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The limits set forth above are minimum limits and shall not be construed to
limit the liability of either party.
15.2 Each party shall obtain and maintain the insurance policies
required above with companies rated A- or better by Best's Key Rating Guide or
with a similar rating by another generally recognized rating agency and the
other party, its Affiliates, officers, directors, and employees, and any other
party entitled to indemnification hereunder shall be named as additional
insureds to the extend of such indemnification. Each party shall provide the
other party with an insurance certificate confirming compliance with the
insurance requirements of this Article. The insurance certificate shall indicate
that the other party shall be notified not less than thirty (30) days prior to
any cancellation or material change in coverage.
15.3 If either party provides any of the foregoing coverages through a
claims made policy basis, that party shall cause such policy or policies to be
maintained for at least three (3) years beyond the expiration of this Agreement.
15.4 The parties shall each obtain from the insurance companies
providing the coverages required by this Agreement a waiver of all rights of
subrogation or recovery in favor of the other party and, as applicable, its
members, managers, shareholders, Affiliates, assignees, officers, directors, and
employees or any other party entitled to indemnity under this Agreement to the
extent of such indemnity.
15.6 Nothing in this Agreement shall be construed to prevent either
party from satisfying its insurance obligations pursuant to this Agreement under
a blanket policy or policies of insurance that meet or exceed the requirements
of this Article.
ARTICLE XVI
TAXES AND GOVERNMENTAL FEES
16.1 Grantee shall timely report and pay any and all sales, use,
income, gross receipts, excise, transfer, ad valorem or other taxes, and any and
all franchise fees or similar fees assessed against it due to its ownership of
the Grantee IRU, its use of the Grantee Fibers, including the provision of
services over the Grantee Fibers, its use of any other part of the System, or
its ownership or use of facilities connected to the Grantee Fibers.
16.2 Subject to Section 16.1 above, Williams shall timely report and
pay any and all sales, use, income, gross receipts, excise, transfer, ad valorem
or other taxes, and any and all franchise fees or similar fees assessed against
it due to its construction, ownership or use of the System, provided that
Grantee shall reimburse Williams for its Pro-Rata Share of property taxes
(including ad valorem, use, property, or similar taxes, franchise fees, or
assessments that are based on the value of property or of a property right)
attributable to the System, including taxes based on the value, operation, or
existence of the System.
16.3 If Williams is assessed for any taxes or fees related to Grantee's
ownership of the Grantee IRU or Grantee's use of the Grantee Fibers or that
Grantee is obligated to pay pursuant to Sections 16.1 or 16.2, Grantee shall
reimburse Williams for any payment of such taxes or fees within thirty (30) days
of receipt of Williams' invoice.
16.4 The parties shall cooperate in any contest of any taxes or fees so
as to avoid, to the extent reasonably possible, prejudicing the interests of the
other party.
16.5 If Williams determines that it should relocate a portion of the
System to bypass a jurisdiction that has imposed or assessed taxes or fees on
Williams or the System, Williams shall provide Grantee at least sixty (60) days
prior notice of the proposed relocation. After such 60-day period, Williams
shall proceed with the relocation as provided in, and Grantee shall bear its
Pro-Rata Share of the relocation Costs as set forth in, Article X.
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16.5 If the charges for Required Rights payable to governmental or
quasi-governmental agencies or for use of governmental or quasi-governmental
rights of way during a calendar year exceed twice the amount payable during the
first full calendar after the Acceptance Date, then Grantee shall pay its
Pro-Rata Share of such excess within thirty (30) days of receipt of Williams'
invoice therefor.
ARTICLE XVII
DISCLAIMER OF WARRANTIES
17.1 EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, WILLIAMS MAKES
NO WARRANTY TO GRANTEE OR ANY OTHER ENTITY, WHETHER EXPRESS, IMPLIED OR
STATUTORY, AS TO THE INSTALLATION, DESCRIPTION, QUALITY, MERCHANTABILITY,
COMPLETENESS, OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY FIBERS, THE SYSTEM,
OR ANY SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER
MATTER, ALL OF WHICH WARRANTIES ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
17.2 No Facility Owners/Lenders have made any representation or
warranty of any kind, express or implied, to Grantee concerning Williams, the
Grantee Fibers, the Cable, or the System or as to any of the matters set forth
in Sections 17.1 or 25.1. No Grantee Lenders have made any representation or
warranty of any kind, express or implied, to Williams concerning Grantee, the
Grantee Fibers, the Cable, or the System or as to any of the matters set forth
in Sections 17.1 or 25.1 OR AS TO ANY OTHER MATTER.
ARTICLE XVIII
NOTICE
18.1 Unless otherwise provided in this Agreement, all notices and
communications concerning this Agreement shall be in writing and addressed to
the other party as follows:
If to Grantee:
----------------------------
----------------------------
----------------------------
----------------------------
with a copy to: ----------------------------
----------------------------
----------------------------
----------------------------
If to Williams: Williams Communications, Inc.
Attn: ______________________
One Williams Center, Suite ____
Tulsa, Oklahoma 74172
Facsimile No.: (918) 573____
with a copy to: Williams Communications, Inc.
Attn: General Counsel
One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Facsimile No.: (918) 5733005
or at such other address as may be designated in writing to the other party.
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18.2 Unless otherwise provided herein, notices shall be hand delivered,
sent by registered or certified U.S. Mail, postage prepaid, or by commercial
overnight delivery service, or transmitted by facsimile, and shall be deemed
served or delivered to the addressee or its office when received at the address
for notice specified above when hand delivered, upon confirmation of sending
when sent by facsimile, on the day after being sent when sent by overnight
delivery service, or three (3) days after deposit in the mail when sent by U.S.
mail.
ARTICLE XIX
CONFIDENTIALITY
19.1 If the parties have entered into (or later enter into) a
Confidentiality Agreement, the terms of such an agreement shall control and
Section 19.2 shall not apply; however, if any such Confidentiality Agreement
expires or is no longer effective at any time during the Term of this Agreement,
Section 19.2 shall be in effect during those periods.
19.2 In the absence of a separate Confidentiality Agreement between the
parties, if either party provides confidential information to the other in
writing and identified as such or if in the course of performing under this
Agreement a party learns confidential information regarding the facilities or
plans of the other, the receiving party shall protect the confidential
information from disclosure to third parties with the same degree of care
accorded its own confidential and proprietary information; provided, however,
that the parties shall each be entitled to provide such confidential information
to their respective directors, officers, members, managers, employees, agents,
and contractors, consultants ("Representatives"), Affiliates, contractors,
financial institutions, underlying facility owners, potential assignees (who are
bound by a written agreement restricting use and disclosure of confidential
information) and Representatives of Affiliates, in each case whose access is
reasonably necessary. Each such recipient of confidential information shall be
informed by the party disclosing confidential information of its confidential
nature, and shall be directed to treat such information confidentially and shall
agree to abide by these provisions. In any event, each party shall be liable
(with respect to the other party) for any breach of this provision by any entity
to whom that party discloses confidential information. The terms of this
Agreement (but not its execution or existence) shall be considered confidential
information for purposes of this Article. Notwithstanding any other provision
herein, neither Williams nor Grantee shall be required to hold confidential any
information that:
(a) Becomes publicly available other than through the recipient;
(b) Is required to be disclosed by a governmental, regulatory
authority, or judicial order, rule, or regulation or
proceedings with respect to this Agreement or a party's
obligations as a publicly held company;
(c) Is independently developed by the disclosing party;
(d) Becomes available to the disclosing party without restriction
from a third party; or
(e) Is required by its lender and is given to such lender on a
confidential basis.
These obligations shall survive expiration or termination of this Agreement for
a period of two (2) years.
19.3 Notwithstanding Sections 19.1 and 19.2, confidential information
shall not include information disclosed by the receiving party as required by
applicable law or regulation; provided, however, that the information disclosed
is limited to the existence and general nature of the relationship between
Williams and Grantee, including, as required, the scope, approximate revenues,
purposes, and expectations related to such relationship and a description of any
disputes relating thereto. Notwithstanding the foregoing, this Agreement may be
provided to any governmental agency or court of competent jurisdiction to the
extent required by applicable law.
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19.4 Neither party shall use the name, trade name, service mark, or
trademark of the other in any promotional or advertising material without the
prior written consent of the other. The parties shall coordinate and cooperate
with each other when making public announcements related to the terms of this
Agreement and each party shall have the right to promptly review, comment upon,
and approve any publicity materials, press releases, or other public statements
by the other party that refer to, or that describe any aspect of, this
Agreement.
ARTICLE XX
DEFAULT
20.1 Except as set forth in Section 20.2, a party shall not be in
default under this Agreement unless and until the other party provides it
written notice of such default and the first party shall have failed to cure the
same within thirty (30) days after receipt of such notice; provided, however,
that where such default cannot reasonably be cured within such thirty (30) day
period, if the first party shall proceed promptly to cure the same and prosecute
such curing with due diligence, the time for curing such default shall be
extended for such period of time as may be necessary to complete such curing.
Any event of default may be waived at the non-defaulting party's option. Upon
the failure of a party to timely cure any such default after notice thereof from
the other party and expiration of the above cure periods, then the
non-defaulting party may, subject to the terms of Article XXII entitled
Arbitration, pursue any legal remedies it may have under applicable law or
principles of equity relating to such breach.
20.2 If Grantee fails to fully pay any required payment of the Contract
Price under Article III or any other payment required to be paid under this
Agreement when due, Williams may, in addition to any other remedies that it may
have under this Agreement or by law, in its sole discretion, terminate this
Agreement upon ten (10) days' notice if such payment (together with applicable
interest) is not made within such ten (10) day period.
20.3 If either Williams or Grantee fails to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date such
payment is due until paid, including accrued interest, at a rate (unless
specifically described elsewhere in this Agreement) equal to eighteen percent
(18%) per annum or, if lower, the highest percentage allowed by law. No interest
charges shall apply to the periods provided for in Sections 3.2 or 9.3 for
payments due to adjustments arising from differences between the estimated Route
Miles and the actual Route Miles.
20.4 The deposit to be paid pursuant to Subsection 3.1(a) shall be
nonrefundable unless a court or arbitrator orders rescission of this Agreement
due to Williams' material breach of its obligations under this Agreement.
ARTICLE XXI
FORCE MAJEURE
21.1 Neither Williams nor Grantee shall be in default under this
Agreement with respect to any delay in its performance (other than a failure to
make payments when due) caused by any of the following conditions (each a "Force
Majeure Event"): (a) act of God; (b) fire; (c) flood; (d) material shortage or
unavailability not resulting from the responsible party's failure to timely
place orders or take other necessary actions therefor; (e) government codes,
ordinances, laws, rules, regulations, or restrictions; (f) war or civil
disorder; or (g) any other cause beyond the reasonable control of such party.
The party claiming relief under this Article shall promptly notify the other in
writing of the existence of the Force Majeure Event relied on, the expected
duration of the Force Majeure Event, and the cessation or termination of the
Force Majeure Event. The party claiming relief under this Article shall exercise
commercially reasonable efforts to minimize the time for any such delay.
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ARTICLE XXII
ARBITRATION
22.1 Any dispute arising between Williams and Grantee in connection
with this Agreement that is not settled to their mutual satisfaction within the
applicable notice or cure periods provided in this Agreement, shall be settled
by arbitration in Tulsa, Oklahoma, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the date that such
notice is provided. If Williams and Grantee cannot agree on a single arbitrator
within fifteen (15) days after the applicable notice or cure period has expired,
Williams and Grantee shall each select an arbitrator within such fifteen (15)
day period and the two (2) arbitrators shall select a third arbitrator within
ten (10) days. If the parties fail to appoint arbitrators or the arbitrators
cannot agree on a third arbitrator, then either party may request that the
American Arbitration Association select and appoint a neutral arbitrator who
shall act as the sole arbitrator. The parties shall be entitled to submit expert
testimony and/or written documentation on such arbitration proceeding. The
decision of the arbitrator or arbitrators shall be final and binding upon
Williams and Grantee and shall include written findings of law and fact, and
judgment may be obtained thereon by either Williams or Grantee in a court of
competent jurisdiction. Williams and Grantee shall each bear the cost of
preparing and presenting its own case. The cost of the arbitration, including
the fees and expenses of the arbitrator or arbitrators, shall be shared equally
by Williams and Grantee unless the award otherwise provides. The arbitrator or
arbitrators shall be instructed to establish procedures such that a decision can
be rendered within sixty (60) days of the appointment of the arbitrator or
arbitrators. In no event shall the arbitrator or arbitrators have the power to
award any damages described in and limited by Article XIV which Article shall be
binding on the arbitrator(s).
22.2 The obligation to arbitrate shall not be binding upon any party
with respect to requests for preliminary injunctions, temporary restraining
orders, specific performance, or other procedures in a court of competent
jurisdiction to obtain interim relief when deemed necessary by such court to
preserve the status quo or prevent irreparable injury pending resolution by
arbitration of the actual dispute.
22.3 Any arbitrator appointed to act under this Article must agree to
be bound to the provisions of Article XIX entitled Confidentiality with respect
to the terms of this Agreement and any information obtained during the course of
the arbitration proceedings.
ARTICLE XXIII
RULES OF CONSTRUCTION
23.1 The captions or headings in this Agreement are strictly for
convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement that import
the singular connotation shall be interpreted as plural, and words that import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require. References to "person" or "entity"
each include natural persons and legal entities, including but not limited to,
corporations, limited liability companies, partnerships, sole proprietorships,
business divisions, unincorporated associations, governmental entities, and any
entities entitled to bring an action in, or that are subject to suit in an
action before, any state or federal court of the United States.
23.2 Unless expressly defined herein, words having wellknown technical
or trade meanings shall be so construed.
23.3 Except as set forth to the contrary herein, any right or remedy of
Williams or Grantee shall be cumulative and without prejudice to any other right
or remedy, whether contained herein or not.
23.4 Nothing in this Agreement is intended to provide any legal rights
to anyone not an executing party of this Agreement except under the
indemnification and insurance provisions and except that (i) the Released
Parties shall have the benefit of Sections 14.3, 24.1, and 28.2 and (ii) the
Facility Owners/Lenders shall be entitled to rely on and have the benefit of
Sections 17.2 and 28.2.
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23.5 This Agreement has been fully negotiated between and jointly
drafted by Williams and Grantee.
23.6 In the event of a conflict between the provisions of this
Agreement and those of any Exhibit, the provisions of this Agreement shall
prevail and such Exhibits shall be corrected accordingly.
23.7 Except as otherwise set forth herein, for the purpose of this
Agreement the normal standards of performance within the telecommunications
industry in the relevant market shall be the measure of whether a party's
performance is reasonable and timely.
23.8 Except as the context otherwise indicates, all references to
Exhibits, Articles, Sections, Subsections, Clauses, and Paragraphs refer to
provisions of this Agreement.
23.9 The failure of either Williams or Grantee to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
23.10 This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Oklahoma without reference to its choice
of law principles.
23.11 If any term, covenant or condition in this Agreement shall, to
any extent, be invalid or unenforceable in any respect under the laws governing
this Agreement, the remainder of this Agreement shall not be affected thereby,
and each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE XXIV
ASSIGNMENT
24.1 An assignment (or other transfer) of this Agreement or a party's
rights or obligations hereunder to any other party shall not be effective
without (i) the prior written consent of the non-assigning party and (ii) the
written agreement of the assignee to be bound by the indemnification provisions
and limitations on liability and recourse set forth in this Agreement (including
those benefiting the Released Parties).
24.2 Except as set forth in Section 24.4, the non-assigning party may
withhold consent to an assignment in its sole discretion, if the assignment:
(a) is made by Grantee within one (1) year of the Effective Date,
other than as part of a sale of substantially all of Grantee's
assets; or
(b) is an assignment of less than all of a party's rights or
obligations hereunder.
24.3 Except to the extent Section 24.2 provides the non-assigning party
the right to withhold its consent in its sole discretion and except as set forth
in Section 24.5, the non-assigning party shall not unreasonably withhold its
consent to an assignment if neither the assigning party nor the proposed
assignee is in material default under this Agreement or any other agreement with
the non-assigning party.
24.4 The provisions of Section 24.2 notwithstanding:
(a) Williams may assign some or all of its rights and obligations
hereunder to State Street Bank and Trust Company of
Connecticut, National Association, in connection with a
financing by Williams of construction of its fiber optic
network; in addition, Street Bank and Trust Company of
Connecticut, National Association, may further assign this
Agreement as collateral for such
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financing. If Williams makes an assignment pursuant to this
Subsection 24.4(a), Williams (or its assignee pursuant to an
assignment made under the other provisions of this Article
XXIV) shall guarantee performance of the assignee's
obligations.
(b) Williams may assign all of its rights and obligations to the
underlying facilities owner or operator with respect to
portion(s) of the Route between two points of presence on the
System with the prior written consent of Grantee, which
consent shall not be unreasonably withheld if neither Williams
nor the proposed assignee is in material default under this
Agreement or any other agreement with the Grantee.
24.5 For a period of two (2) years after the Effective Date, Grantee
shall not convey any interest in the rights granted herein except by means of
the provision of capacity or a permitted assignment of this Agreement.
"Capacity" does not include IRU grants, sales, leases, assignments, or other
grants of rights in the form of "windows" or wavelengths in fiber strands, use
of optronic systems, "dark" fiber, "dim" fiber, or "lit" fiber. After such two
(2) year period, Grantee may convey such an interest provided that Grantee shall
serve as the sole point of contact with Williams and no party receiving such
interest shall have any contract rights against or be in privity of contract
with Williams as a result of such conveyance.
24.6 This Agreement and the rights and obligations under this Agreement
(including, without limitation, the limitations on liability and recourse set
forth in this Agreement benefiting the other party and the Released Parties)
shall be binding upon and shall inure to the benefit of Williams and Grantee and
their respective permitted successors and assigns.
24.7 Neither the provisions of this Article nor any other provisions of
this Agreement shall limit the ability of any Facility Owners/Lenders or of any
Released Parties to assign their rights under this Agreement and such Facility
Owners/Lenders and Released Parties may assign their rights hereunder at any
time and from time to time without the consent of, notice to, or any other
action by any other entity. The provisions of this Agreement benefiting the
Facility Owners/Lenders and Released Parties shall inure to the benefit of such
entities and their respective Affiliates, successors, and assigns.
ARTICLE XXV
REPRESENTATIONS AND WARRANTIES
25.1 In addition to any other representations and warranties contained
in this Agreement, each party hereto represents and warrants to the other that:
(a) It has the full right and authority to enter into, execute,
deliver, and perform its obligations under this Agreement;
(b) It has taken all requisite corporate action to approve the
execution, delivery, and performance of this Agreement;
(c) This Agreement constitutes a legal, valid and binding
obligation enforceable against such party in accordance with
its terms; and
(d) Its execution of and performance under this Agreement shall
not violate any applicable existing regulations, rules,
statutes, or court orders of any local, state, or federal
government agency, court, or body.
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ARTICLE XXVI
RELATIONSHIP OF THE PARTIES
26.1 The relationship between Williams and Grantee shall not be that of
partners, agents, or joint venturers for one another, and nothing contained in
this Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including, but not limited to federal income tax
purposes. Williams and Grantee, in performing any of their obligations
hereunder, shall be independent contractors or independent parties and shall
discharge their contractual obligations at their own risk.
ARTICLE XXVII
PROHIBITION ON IMPROPER PAYMENTS
27.1 Neither party shall use any funds received under this Agreement
for illegal or otherwise "improper" purposes. Neither party shall pay any
commission, fees or rebates to any employee of the other party, or favor any
employee of such other party with gifts or entertainment of significant cost or
value. If either party has reasonable cause to believe that one of the
provisions in this Article has been violated, it, or its representative, may
audit the books and records of the other party for the sole purpose of
establishing compliance with such provisions.
ARTICLE XXVIII
ENTIRE AGREEMENT; AMENDMENT; EXECUTION
28.1 Except as set forth in Article XIX, this Agreement constitutes the
entire and final agreement and understanding between Williams and Grantee with
respect to the subject matter hereof and supersedes all prior agreements
relating to the subject matter hereof, which are of no further force or effect.
The Exhibits referred to herein are integral parts hereof and are made a part of
this Agreement by reference.
28.2 This Agreement may only be amended, modified, or supplemented by
an instrument in writing executed by duly authorized representatives of Williams
and Grantee. No such amendment, modification, or supplement shall result in any
modification of (i) any indemnity benefiting any Facility Owners/Lenders or
their respective Affiliates or (ii) any limitation of liability or recourse
benefiting any Released Parties that is adverse to such Released Parties.
28.3 This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
28.4 This Agreement may be duly executed and delivered by a party by
execution and facsimile delivery of the signature page of a counterpart to the
other party, provided that, if delivery is made by facsimile, the executing
party shall promptly deliver a complete counterpart that it has executed to the
other party.
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IN WITNESS WHEREOF and in confirmation of their consent to the terms
and conditions contained in this Agreement and intending to be legally bound
hereby, Williams and Grantee have executed this Agreement as of the dates set
forth below.
---------------------------------------
Date: By:
------------------- ------------------------------------
Print Name:
----------------------------
Title:
---------------------------------
WILLIAMS COMMUNICATIONS, INC.
Date: By:
------------------- ------------------------------------
Print Name:
----------------------------
Title:
---------------------------------
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SCHEDULE 11.02(b)
Supplemental Mortgage Provisions
FLORIDA
1. Property Description: The Property located in Florida which is subject to
Section 11.01 of this Lease is:
All of the Property purchased pursuant to the MediaOne Agreement.
2. Supplemental Rights: With respect to the Property described in Item 1
above, the Lessor shall have the right, if an Event of Default shall have
occurred:
(i) to exercise any and all remedies described in the Participation
Agreement or the other Operative Documents.
(ii) to declare the entire unpaid balance of the Notes and all other
obligations of Lessee secured hereby immediately due and payable without
further notice.
(iii) to the extent permitted by law, to take immediate possession of
the Property or any part thereof (which Lessee agrees to surrender to
Lessor) and manage, control or lease same to such person or persons and
exercise all other rights granted pursuant to the Lease. The taking of
possession under this paragraph shall not prevent concurrent or later
proceedings for the foreclosure sale of the Property as provided elsewhere
herein.
(iv) to apply, on ex parte motion to any court of competent
jurisdiction, for the appointment of a receiver and shall be entitled to
the appointment of such receiver as a matter of right, without regard to
the value of the Property as security for the amount of the Loan, or the
solvency or insolvency of any person then liable for the payment of the
amount of the Loan. In addition to the rights of protection afforded to
Lessor by Section 697.07, Florida Statutes (1997), as amended (and not as
an election of remedies), Lessor shall be entitled, as a matter of strict
right and without regard to the value or occupancy of any security for the
obligations secured hereby, to have a receiver appointed by a court without
notice to Lessee, to enter upon and take possession of the Property,
collect the rents therefrom and thereof and apply the same as the
<PAGE> 118
court may direct, such receiver to have all the rights and powers permitted
under the laws of Florida. The expenses, including receiver's fees,
reasonable attorneys' fees (including any incurred in appeals), costs and
agent's compensation, incurred pursuant to the powers herein contained
shall be secured hereby. The right to enter and take possession of the
Property, to manage and operate the same, to collect the rents therefrom
and thereof, whether by a receiver or otherwise, shall be cumulative to any
other right or remedy hereunder or afforded by law, and may be exercised
concurrently therewith or independently thereof Lessor shall be liable to
account only for such rents actually received by Lessor, whether received
pursuant to this paragraph or otherwise. The Lessee hereby specifically
waives the right to object to the appointment of a receiver as aforesaid
and hereby consents that such appointment shall be made as an admitted
equity and as a matter of absolute right to the Lessor and that the same
may be done without notice to the Lessee or any other defendant to such
suit.
(v) to foreclose on the mortgage granted hereby and in case of sale
in an action or proceeding to foreclose and Lessor shall have the right to
sell the Property in parts or as an entirety. It is intended hereby to give
to Lessor the widest possible discretion permitted by law with respect to
all aspects of any such sale or sales.
(vi) to exercise all other remedies available, whether at law or
equity, in such order as Lessor may elect. It shall also not be necessary
that Lessor pay any impositions, premiums or other charges regarding which
Lessee is in default before Lessor may invoke its rights hereunder. All
such other rights and remedies available to Lessor hereunder shall be
cumulative and may be pursued concurrently or successively. The failure or
omission on the part of Lessor to exercise the option for acceleration of
maturity and/or foreclosure or to timely exercise any other option, right,
or remedy conferred upon the Lessor herein, or the acceptance by Lessor of
partial payments hereunder, shall not constitute a waiver of any default or
the right to exercise any such option, but such option shall remain
continuously in force. Acceleration of maturity, once claimed hereunder by
Lessor, at the option of Lessor, may be rescinded by written acknowledgment
to that effect by Lessor, but the tender and acceptance of
2
<PAGE> 119
partial payments alone shall not, in any way, effect or rescind such
acceleration of maturity. The obtaining of a judgment or decree on the
amount of the Loan, whether in the State of Florida or elsewhere, shall not
in any way affect the lien created hereby upon the Property, and any
judgment or decree so obtained shall be secured hereby to the same extent
as the Loan is now secured.
3. Limitation of Rights: With respect to the Property described in item 1
above, the following provisions shall apply:
"Notwithstanding anything to the contrary contained in this Lease, Lessee
and Lessor have agreed that the portion of the Property located in the
State of Florida secures only a portion of the amount of the Loan in the
maximum amount of $38,000,000, and that the value of the Property located
in Florida is $38,000,000. Therefore, irrespective of anything contained in
this Lease to the contrary, in the event of foreclosure and sale of that
portion of the Property located in the State of Florida, the maximum
recovery of Lessor in the event of a sale of that portion of the Property
located in the State of Florida to any purchaser other than Lessor, and the
maximum credit allowed toward the payment of the amount of the Loan in
bidding upon the portion of the Property located in the State of Florida at
a foreclosure sale, shall be $38,000,000, plus such amounts as interest,
costs, attorneys' fees and other monies advanced for insurance premiums,
taxes and preservation of that portion of the Property located in the State
of Florida."
3
<PAGE> 120
SCHEDULE 11.03(c)
Supplemental Security Provisions
FLORIDA
1. Property Description: The Property located in Florida which is subject to
Section 11.03 of this Lease is:
All of the Property purchased pursuant to the MediaOne Agreement.
2. Supplemental Provisions: With respect to the Property described in Item 1
above:
(a) The Lessee covenants and agrees with the Lessor that from and after
the date of this Lease and until the repayment in full of the Loan:
(i) At any time and from time to time, upon the written request of
the Lessor and at the sole expense of the Lessee, the Lessee shall promptly
and duly execute and deliver any and all such further instruments and
documents and take such further action as the Lessor may reasonably deem
desirable to obtain the full benefits of this agreement and of the rights
and powers herein granted, including (A) filing any financing or
continuation statements under the Uniform Commercial Code with respect to
the liens and security interests granted hereunder or under any other Loan
Document, (B) transferring the Collateral to Lender's possession (if such
Collateral consists of documents, instruments or chattel paper or if a
security interest in such Collateral can be perfected only by possession)
and (C) to obtain waivers of liens from landlords and mortgagees. The
Lessee also hereby authorizes the Lessor to file any such financing or
continuation statement without the signature of the Lessee to the extent
permitted by applicable law. The filing of a copy of this Lease (or a
memorandum hereof) shall be deemed to constitute the filing of a financing
statement to perfect the security interest in the Collateral and to secure
the payment of all amounts due from time to time from the Lessee to the
Lessor under this Lease and the other Operative Documents.
(ii) The Lessee shall not change its name, identity or corporate
structure in any manner which might make any financing or continuation
statement filed in connection herewith seriously misleading within the
meaning of Section 9-402(7)
<PAGE> 121
of the Uniform Commercial Code or any other then applicable provision of
the Uniform Commercial Code unless the Lessee shall have given the Lessor
at least thirty (30) days' prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by the Lessor to amend such
financing statement or continuation statement so that it is not seriously
misleading.
(b) (i) The Lessee hereby irrevocably constitutes and appoints the
Lessor and any authorized officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Lessee and in
the name of the Lessee or in its own name, from time to time in the
Lessor's discretion, for the purpose of carrying out the terms of this
agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this agreement and, without
limiting the generality of the foregoing, hereby grants to the Lessor the
power and right, on behalf of the Lessee, without notice to or assent by
the Lessee, and at any time, to do the following:
(A) in the name of the Lessee, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other instruments for the payment of monies due under any
of the Collateral;
(B) continue any insurance existing pursuant to the terms of this
agreement or any of the other Operative Documents, and pay all or any part
of the premiums therefor and the costs thereof; and
(C) receive payment of any and all monies, claims, and other amounts
due or to become due at any time arising out of or in respect of any
Collateral.
(ii) The Lessee hereby irrevocably constitutes and appoints the
Lessor and any authorized employee, officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Lessee and in
the name of the Lessee or in its own name, from time to time in the
Lessor's
2
<PAGE> 122
discretion, for the purpose of carrying out the terms of this agreement, to
take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish
the purposes of this agreement and, without limiting the generality of the
foregoing, hereby grants to the Lessor the power and right, on behalf of
the Lessee, without notice to or assent by the Lessee, upon the occurrence
and during the continuation of an Event of Default, to do the following:
(A) ask, demand, collect, receive and give acquittances and receipts
for any and all money due or to become due under any of the Collateral;
(B) pay or discharge taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against the Collateral;
(C) effect any repairs or obtain any insurance called for by the
terms of this agreement or any of the other Operative Documents and pay all
or any part of the premiums therefor and costs thereof;
(D) direct any party liable for any payment under or in respect of
any of the Collateral to make payment of any and all monies due or to
become due thereunder, directly to the Lessor or as the Lessor shall
direct;
(E) settle, compromise or adjust any suit, action, or proceeding
and, in connection therewith, give such discharges or releases as the
Lessor may deem appropriate;
(F) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
the Lessor for the purpose of collecting any and all such monies due under
any of the Collateral whenever payable;
(G) commence and prosecute any suits, actions or proceedings of law
or equity in any court of competent jurisdiction to collect the Collateral
or any part thereof and to enforce any other right in respect of any of the
Collateral;
(H) defend any suit, action or proceeding brought against the Lessee
with respect to any of the Collateral if the Lessee does not defend such
suit, action or proceeding or if the Lessor believes that the Lessee is not
pursuing such defense in a manner that will maximize the recovery with
respect to such Collateral; and
3
<PAGE> 123
(I) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral as fully and completely as though
the Lessor were the absolute owner thereof for all purposes, and to do, at
the Lessor's option and the Lessee's expense, at any time, or from time to
time, all acts and things which the Lessor reasonably deems necessary to
perfect, preserve, or realize upon the Collateral and the Lessor's security
interest therein in order to effect the intent of this agreement, all as
fully and effectively as the Lessee might do.
(iii) The Lessee hereby ratifies, to the extent permitted by law, all
that said attorneys shall lawfully do or cause to be done by virtue hereof.
The foregoing power of attorney is a power coupled with an interest and
shall be irrevocable until the repayment in full of the Loan.
(iv) The powers conferred on the Lessor hereunder are solely to
protect the Lessor's security interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. The Lessor shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and none of its officers, directors, employees,
agents or representatives shall be responsible to the Lessee for any act or
failure to act, except for their own gross negligence or willful misconduct
as determined by a final judgment of a court of competent jurisdiction.
(v) The Lessee also authorizes the Lessor, at any time and from time
to time, to (i) communicate in its own name with any party to any contract
with regard to the assignment of the right, title and interest of the
Lessee in and under such contracts and other matters relating thereto and
(ii) execute, in connection with the exercise of its remedies provided for
herein, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) (i) If any Event of Default shall occur and be continuing, the Lessor
may exercise in addition to all other rights and remedies granted to it
under this agreement, the other Operative Documents and under any other
instrument or agreement securing, evidencing or relating to the Loan, all
rights and remedies of a secured party under the Uniform Commercial Code as
in effect at such time in the State of New York (the "Uniform Commercial
Code"). Without limiting the generality of the foregoing, the Lessee
expressly agrees that in any such event the Lessor without demand of
performance or other demand, advertisement or notice of any kind (except
the notice specified below of time
4
<PAGE> 124
and place of public or private sale) to or upon the Lessee or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the Uniform Commercial Code and other
applicable law), may forthwith enter upon the premises of the Lessee where any
Collateral is located through self-help, without judicial process, without
first obtaining a final judgment or giving the Lessee notice and opportunity for
a hearing on the Lessor's claim or action, and without paying rent to the
Lessee, and collect, receive, assemble, process, appropriate and realize upon
the Collateral, or any part thereof, and may forthwith sell, lease, assign, give
an option or options to purchase, or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Lessor shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase for its benefit the whole or any part of said Collateral so sold,
free of any right or equity of redemption, which equity of redemption the Lessee
hereby releases. Such sales may be adjourned or continued from time to time with
or without notice. The Lessor shall have the right to conduct such sales on the
Lessee's premises or elsewhere and shall have the right to use the Lessee's
premises without charge for such sales for such time or times as the Lessor
deems necessary or advisable.
(ii) The Lessee further agrees, at the Lessor's request, to assemble the
Collateral and make it available to the Lessor at places which the Lessor shall
reasonably select, whether at the Lessee's premises or elsewhere. Until the
Lessor is able to effect a sale, lease, or other disposition of the Collateral,
the Lessor shall have the right to use or operate the Collateral, or any part
thereof, to the extent that it deems appropriate for the purpose of preserving
the Collateral or its value or for any other purpose deemed appropriate by the
Lessor. The Lessor shall have no obligation to the Lessee to maintain or
preserve the rights of the Lessee as against third parties with respect to the
Collateral while the Collateral is in the possession of the Lessor. The Lessor
may, if it so elects, seek the appointment of a receiver or keeper to take
possession of the Collateral and to enforce any of the Lessor's remedies with
respect to such appointment without prior notice or hearing. The Lessor shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
5
<PAGE> 125
realization or sale, as provided in subsection (d) (iv) hereof, the Lessee
remaining liable for any deficiency remaining unpaid after such application, and
only after so paying over such net proceeds and after the payment by the Lessor
of any other amount required by any provision of law, including section
9-504(l)(c) of the Uniform Commercial Code (but only after the Lessor has
received what the Lessor considers reasonable proof of a subordinate party's
security interest), need the Lessor account for the surplus, if any, to the
Lessee. To the maximum extent permitted by applicable law, the Lessee waives all
claims, damages, and demands against the Lessor arising out of the repossession,
retention or sale of the Collateral except such which may arise out of the gross
negligence or willful misconduct of such party. The Lessee agrees that ten (10)
days' prior notice by the Lessor of the time and place of any public sale or of
the time after which a private sale may take place is reasonable notification of
such matters. The Lessee shall remain liable for any deficiency if the proceeds
of any sale or disposition of the Collateral are insufficient to pay all amounts
to which the Lessor is entitled, the Lessee also being liable for any reasonable
outside attorneys' fees incurred by the Lessor to collect such deficiency.
(iii) The Lessee agrees to pay any and all costs of the Lessor, including,
without limitation, reasonable outside attorneys' fees, incurred in connection
with the enforcement of any of its rights and remedies hereunder.
(iv) Except as otherwise specifically provided herein, the Lessee hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this agreement or
any of the Collateral.
(v) The proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be applied by the Lessor upon receipt, in the
following order of priorities:
First, the payment in full of reasonable expenses of the Lessor in
connection with such sale, disposition or other realization, including all
expenses, liabilities and advances incurred or made by the Lessor in connection
therewith, including reasonable outside attorney's fees;
Second, to the payment of accrued but unpaid interest on the Loan;
6
<PAGE> 126
Third, to the payment of unpaid principal of the Loan;
Fourth, to the payment of all other obligations secured hereby until
all such other obligations shall have been paid in full; and
Finally, to payment to the Lessee, or its successors or assigns, to any
other party lawfully entitled thereto, or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
(d) The Lessor shall use reasonable care with respect to the Collateral in its
possession or under its control. The Lessor shall not have any other duty as to
any Collateral in its possession or control or in the possession or control of
any agent or nominee of the Lessor, or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. Upon request of the Lessee, the Lessor shall account for any monies
received by the Lessor in respect of any foreclosure on or disposition of the
Collateral.
(e) The Lessor shall not by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Lessor and then only to the extent
therein set forth. A waiver by the Lessor of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Lessor would otherwise have had on any future occasion. No failure to
exercise nor any delay in exercising on the part of the Lessor, any right, power
or privilege hereunder, shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by the Lessor and the Lessee.
3. Limitation of Rights: With respect to the Property described in item 1
above, the following provisions shall apply:
"Notwithstanding anything to the contrary contained in this Lease, Lessee
and Lessor have agreed that the portion of the Property located in the
State of Florida secures only a portion of the amount of the Loan in the
maximum amount of
7
<PAGE> 127
$38,000,000, and that the value of the Property located in Florida is
$38,000,000. Therefore, irrespective of anything contained in this Lease to the
contrary, in the event of foreclosure and sale of that portion of the Property
located in the State of Florida, the maximum recovery of Lessor in the event of
a sale of that portion of the Property located in the State of Florida to any
purchaser other than Lessor, and the maximum credit allowed toward the payment
of the amount of the Loan in bidding upon the portion of the Property located in
the State of Florida at a foreclosure sale, shall be $38,000,000, plus such
amounts as interest, costs, attorneys' fees and other monies advanced for
insurance premiums, taxes and preservation of that portion of the Property
located in the State of Florida."
8
<PAGE> 128
SCHEDULE 12.15
Acquisition Cost, Original Capitalized Cost and
Adjusted Capitalized Cost of Certain Property
Subject to Prior Lease
<TABLE>
<S> <C>
1. Acquisition Cost (May 6, 1998): $25,772,580.41
2. Original Capitalized Cost.
a. Series A Portion $21,903,570.55
b. Series B Portion 2,953,647.37
c. Series C Portion 915,362.49
--------------
d. Total Original Capitalized
Cost (Sept. 2, 1998) $25,772,580.41
==============
3. Adjusted Capitalized Cost.
a. Series A Portion $21,929,857.84
b. Series B Portion 2,957,249.53
c. Series C Portion 916,916.35
--------------
d. Total Adjusted Capitalized
Cost (Sept. 2, 1998) $25,804,023.72
==============
</TABLE>
<PAGE> 129
EXHIBIT A
Form of Certificate of Acceptance
CERTIFICATE OF ACCEPTANCE, dated September 2, 1998, by Williams
Communications, Inc., a Delaware corporation (the "Lessee"). All capitalized
terms used herein, unless defined herein, shall have the respective meanings set
forth in the Amended and Restated Lease, dated as of September 2, 1998 (the
"Lease"), among the Lessee and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee (the "Lessor").
W I T N E S S E T H :
WHEREAS, the Lessor and the Lessee are parties to the Lease which
provides for, inter alia, the execution and delivery of a Certificate of
Acceptance for the purpose of acknowledging acceptance of specific Items of
Property under the Lease and acknowledging the leasing of such Items of Property
under the Lease in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Lessor and the Lessee hereby agree as follows:
1. The Lessor and the Lessee hereby acknowledge and confirm that the
Lessee leases from the Lessor under the Lease the Items of Property specified in
Schedule I hereto.
2. The Lessee hereby confirms to the Lessor that the Lessee has
accepted such Items of Property for all purposes of the Lease as being in good
working order and repair and without defect or inherent vice in condition,
design, operation or fitness for use, and otherwise in full compliance with the
Lease; provided, however, that nothing contained herein or in the Lease shall in
any way diminish or otherwise affect any right the Lessee may have with respect
to such Property against any third party (other than the Lessor Group).
3. The Lessee hereby confirms to the Lessor that:
(a) Such items of Property do not constitute Regulated Property.
<PAGE> 130
(b) Schedule 2.02(b) of the Lease is hereby amended and supplemented by
adding thereto the Supplemental Use Restrictions annexed as
Schedule II to this Certificate of Acceptance.
IN WITNESS WHEREOF, the Lessee has caused this Certificate of
Acceptance to be duly executed on the day and year first above written.
WILLIAMS COMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title:
ACCEPTED:
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual
capacity, but solely as
Trustee
By:
---------------------------
Name:
Title:
2
<PAGE> 131
Schedule I to the Certificate of Acceptance
<TABLE>
<CAPTION>
Description Cost of Property Appraisal Value
of Property Quantity (per unit) (if any)(l)
- ----------- -------- ---------------- ---------------
<S> <C> <C> <C>
</TABLE>
- ----------
(1) Appraised Value as determined by the Appraiser.
<PAGE> 132
1 Schedule II to the Certificate of Acceptance
2 Supplemental Use Restrictions
<PAGE> 133
EXHIBIT B
Fiber Testing Standards
1. General. This exhibit defines the standard procedures for testing and
acceptance of the fiber and splices. In general, the Lessee (or its designee),
will perform all tests. The tests should follow standard industry requirements
and criteria. The Lessee will provide all test data to the Lessor upon request.
2. Initial Construction Testing
A. During initial construction, the Lessee (or its designee) shall use an
optical time domain reflectometer ("OTDR") to test splices and shall use an OTDR
and a 1-km launch reel to test pigtail connectors. Such initial construction
tests shall be uni-directional and performed at 1550 nm.
B. If the loss value of two connectors and the associated pigtail splice
exceeds 1 dB, the Lessee (or its designee) shall break the splice and re-splice
until the loss value is 1.0 dB or less. If the Lessee (or its designee) is
unable to achieve a loss value of 1.0 dB or less after five total splicing
attempts, the splice shall be marked as Out-of-Spec (OOS).
C. If the loss value for a splice, when measured in one direction with an
OTDR, exceeds 0.15 dB, the Lessee (or its designee) shall break the splice and
re-splice until the loss value is 0.15 dB or less, provided that, if the Lessee
(or its designee) is not able to achieve a loss value of 0.15 dB after three
total splicing attempts, then the maximum loss value shall be 0.3 dB. If, after
two additional resplicing attempts, the Lessee (or its designee) is not able to
achieve a loss value of 0.3 dB or less, then the Lessee (or its designee) shall
mark the splice as Out-of-Spec (OOS).
3. End-to-End Testing
A. After the Lessee (or its designee) has established end-to-end connectivity
on the fibers during initial construction, it shall:
o perform bi-directional end-to-end tests,
o test continuity to confirm that no fibers have been "frogged" or crossed in
any of the splice points,
<PAGE> 134
o record loss measurements using a light source and a power meter, and
o take OTDR traces and record splice loss measurements.
B. The Lessee (or its designee) shall perform the bi-directional end-to-end
tests and OTDR traces at both 1310 nm and 1550 nm. The Lessee (or its designee)
shall measure and verify losses for each splice point in both directions and
average the loss values. The Lessee (or its designee) shall mark any splice
points as Out-of-Spec (OOS) that have an average loss value, based on
bi-directional OTDR testing, in excess of 0.3 dB.
4. Post-Construction Testing
After performing permanent resplicing (in conjunction with repair of a cable
cut, replacement of a segment of cable, or other work after initial installation
and splicing of the cable), the test procedures set forth section 2 (End-to-End
Testing), shall apply to the relevant fibers and cable segments. The provisions
in sections 4 (OTDR Equipment and Settings) and 5 (Acceptance Test
Deliverables), that are relevant to such testing shall also apply.
5. Out-of-Spec Splices
Out-of-Spec splices shall be noted, but shall not preclude acceptance of a
fiber if the Out-of-Spec condition does not affect transmission capability
(based on use of then-prevailing telecommunications industry standards
applicable to equipment generally used with the relevant type of fiber) or
create a significant possibility of an outage.
6. OTDR Equipment and Settings
A. The Lessee (or its designee) shall use OTDR equipment and settings that
are, in its reasonable opinion, suitable for performing accurate measurements of
the fiber installed. Such equipment and settings shall include, without
limitation, the equipment and settings described below.
B. The Lessee (or its designee) has approved the following OTDRs and settings
for acceptance testing: the Laser Precision TD3000 and CMA4000 models and
compatible models.
C. The Lessee (or its designee) has approved the following settings for
various OTDR tests:
<PAGE> 135
i. Index of refraction settings:
<TABLE>
<CAPTION>
1310 nm 1550 nm
------- -------
<S> <C> <C>
Lucent Truwave 1.4738 1.4732
Corning SMF-28 1.4675 1.4681
Corning SMF-LS 1.471 1.470
Corning LEAF 1.470 1.469
Sumitomo fiber 1.4670 1.4670
</TABLE>
ii. Tests of a pigtail connector and its associated splice:
<TABLE>
<CAPTION>
TD3000 CMA4000
-------------- ---------------
<S> <C>
4 km Range 4 km Range
50 ns Pulse 50 ns Pulse
1 m Resolution 1 m Resolution
Medium Medium
Averaging Averaging
</TABLE>
<PAGE> 136
iii. End to End Segment OTDR Testing:
<TABLE>
<CAPTION>
TD3000 CMA4000
-------------- ---------------
<S> <C>
64 km Range 100 km Range
500 ns Pulse 250 ns Pulse
4 m Resolution 4 m Resolution
Medium Medium
Averaging Averaging
</TABLE>
Note: If the end points are more than 64 kilometers apart, the
Lessee (or its designee) currently uses TD3000 set at 128 km
range setting and performs bi-directional testing only at 1550
nm.
7. Acceptance Test Deliverables
The Lessee (or its designee) shall provide data sheets or computer media
containing the following information for the relevant fibers and cable segments:
A. Verification of end-to-end fiber continuity with power level readings for
each fiber taken with a light source and power meter.
B. Verification of loss at each splice point to be below 0.3 dB as well as
the final bi-directional OTDR test data, with distances.
C. Cable manufacturer, cable type (buffer/ribbon), fiber type, cable reel
number, number of fibers, number of fibers per tube, and distance of each
section of cable between splice points.
<PAGE> 1
EXHIBIT 10.31
CONCENTRIC NETWORK CORPORATION
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 19th day of June, 1997, by and among Concentric Network
Corporation, a Florida corporation (the "Company"), and Williams Communications
Group, Inc., a Delaware corporation (the "Purchaser").
In consideration of the mutual promises, covenants, and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. The Loan and the Note. The Purchaser hereby agrees to lend to the
Company, on the date hereof, and on the terms of and conditions hereof, up to an
aggregate principal amount of $3,000,000 (the "Loan"). The Loan made to the
Company by the Purchaser shall be evidenced by a secured promissory note in
substantially the form attached hereto as Exhibit A (the "Note").
2. The Warrant. As an inducement to the Purchaser to make the Loan, the
Company shall issue to the Purchaser a warrant to purchase up to the number of
shares of the Common Stock of the Company set forth in the Common Stock
Purchase Warrant in substantially the form attached hereto as Exhibit B (the
"Warrant").
3. Representations and Warranties of the Company. Except as set forth in
the Schedule of Exceptions attached hereto as Schedule 3, and except as
otherwise disclosed in the section captioned "Business--Legal Proceedings" of
the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission by the Company, the Company hereby represents and warrants to the
Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of its
jurisdiction of incorporation and is in good standing under the laws of said
jurisdiction. The Company has requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as currently
conducted. The Company is qualified to do business as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on its business.
3.2 Corporate Power; Authorization. The Company has all requisite
legal and corporate power to execute and deliver the Transaction Documents (as
defined in Section 5.4) and to carry out and perform all of its obligations
under the Transaction Documents. The execution, delivery and performance of the
Transaction Documents by the Company have been duly authorized by all requisite
corporate action. The Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting
<PAGE> 2
the enforcement of creditors' rights, and (ii) as limited by equitable
principles generally.
3.3 Non-Contravention. The execution, delivery and performance of the
Transaction Documents and the compliance with the provisions thereof by the
Company do not (i) materially conflict with, or result in a material breach or
violation of, or constitute a material default under, or result in the creation
or imposition of any material lien, or (ii) violate, conflict with or result in
the breach of any material terms of, or result in the material modification of,
any material contract or otherwise give any other contracting party the right to
terminate a material contract, or constitute (or with notice or lapse of time
both constitute) a material default under any material contract to which the
Company is a party or by or to which it or any of its assets or properties may
be bound or subject.
3.4 Litigation. There is no material action, proceeding or
investigation pending against the Company or any of its properties or assets,
nor has the Company received any threat of action, proceeding or investigation,
that questions the validity of the Transaction Documents or any action taken or
to be taken in connection herewith or therewith, or that, alone or in the
aggregate, is reasonably likely to result in any material adverse effect on the
financial condition, assets, liabilities, earnings or business of the Company
and its subsidiaries taken as a whole, nor is the Company aware that there is
any material basis for the foregoing. The Company is not a party to or subject
to the provisions of any material order, writ, injunction judgment or decree of
any court or government agency or instrumentality that will have a material
effect on the operations or business of the Company.
4. Representation and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as follows:
4.1 Binding Obligations. The Purchaser has full legal capacity,
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement is a valid and binding obligation of the
Purchaser, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and general principles
of equity.
4.2 Securities Law Compliance. The Purchaser has been advised that
neither the Note nor the Warrant has been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws and, therefore,
cannot be resold unless they are registered under the Act and applicable state
securities laws or unless an exemption from such registration requirements is
available. The Purchaser is aware that Company is under no obligation to effect
any such registration with respect to the Note or to file for or comply with any
exemption from registration. The Purchaser has not been formed solely for the
purpose of making this investment and is purchasing the Note to be acquired by
the Purchaser hereunder for its own account for investment, not as a nominee or
agent, and not with a view to, or for resale in connection with, the
distribution thereof. The Purchaser has such knowledge and experience in
financial and business matters that the Purchaser is capable of evaluating the
merits and risks of such investment, is able to incur a complete loss of such
2
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investment and is able to bear the economic risk of such investment for an
indefinite period of time. The Purchaser is an accredited investor as such term
is defined in Rule 501 of Regulation D under the Securities Act.
4.3 Access to Information. Such Purchaser acknowledges that Company
has given such Purchaser access to the corporate records and accounts of Company
and to all information in its possession relating to Company, has made its
officers and representatives available for interview by such Purchaser, and has
furnished such Purchaser with all documents and other information required for
such Purchaser to make an informed decision with respect to the purchase of the
Note and Warrant.
5. Conditions to Transaction. The obligation of the Purchaser to make the
Loan, and the obligations of the Company to issue the Note and Warrant, shall be
subject to each of the following conditions having been fulfilled on or before
such date:
5.1 Blue Sky. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exceptions
therefrom, required by any state for the offer and sale of the Note and Warrant
and the issuance of the shares of Common Stock, par value $.001 per share, of
the Company (the "Shares") upon exercise of the Warrant.
5.2 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby shall have been completed.
5.3 Consents and Waivers. The Company shall have obtained any and all
consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
5.4 Transaction Documents. The Company shall have duly executed and
delivered to the Purchaser the following documents (the "Transaction
Documents"):
(a) this Agreement;
(b) the Note issued hereunder;
(c) the Warrant issued hereunder;
(d) the Security Agreement in the form of Exhibit C hereto (the
"Security Agreement") and any financing statements on form UCC-1
executed in connection herewith;
(f) the Technology Escrow Agreement in the form of Exhibit D
hereto; and
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(g) a Term Sheet in the form of Exhibit E hereto setting forth
the basic terms under which Purchaser would serve as an agent and a
reseller of the Company's products and services.
The agreement of the Purchaser to enter into this Agreement or any of the other
Transaction Documents does not obligate or require the Purchaser to enter into
any other contract, agreement or arrangement with the Company.
5.5 Accounts Payable. The Company shall have no accounts payable
outstanding to the Purchaser more than sixty days, or the Company shall have
made provision satisfactory to the Purchaser for the payment of such accounts
payable.
5.6 Opinion. The Company shall have delivered an opinion of its
counsel to the Purchaser in form and substance satisfactory to the Purchaser.
6. Investment Representations; Legends.
6.1 Investment Representations of the Purchaser. The Purchaser
hereby represents and warrants to the Company that the Purchaser is acquiring
the Note and the Warrant for its own account for investment and not with a view
toward the distribution thereof. The Purchaser understands that neither of the
Notes, the Warrant or the Shares have been registered under the Securities Act
of 1933, as amended (the "Act"), and that they are being offered and sold
pursuant to an exemption from registration contained in the Act based in part
upon the representations of the Purchaser contained herein.
6.2 Legends.
(a) The Note, the Warrant, and the certificates representing any
Shares will each be stamped or otherwise imprinted with legends as set forth in
the form of Note and Warrant attached as Exhibits A and B, respectively. Such
legends shall be removed by the Company from the Notes, the Warrant, or the
certificates representing the Shares upon delivery to it of an opinion of
counsel that a registration statement under the Act is at the time in effect
with respect to the legended security or that such security can be freely
transferred without such registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Note and Warrant were issued.
(b) The Note, the Warrant, and the certificates representing the
Shares shall also bear any legends required under applicable state securities
laws.
7. Modification: Waiver. No modification or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and signed by the Company and the Purchaser.
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<PAGE> 5
8. Notices. Any notice or report herein required or permitted to be
given shall be given by depositing the same in the United States mail, postage
prepaid and addressed or confirmed facsimile transmission to the parties as
follows:
(a) To the Company:
Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, CA 95014
Attn: Michael F. Anthofer
(b) To the Purchaser:
Williams Communications Group, Inc.
111 East 1st Street
Tulsa, Oklahoma 74103
Attn: Vice President-Finance
or to such other place or places as any of the parties shall designate by
written notice to the others.
9. Successors and Assigns. All covenants and agreements of the parties
contained in this Agreement shall be binding and inure to the benefit of their
respective successors and assigns.
10. Governing Law. This Agreement shall in all respects be governed by
the laws of the State of California.
11. Section Headings. The section and paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
12. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute only one
instrument.
13. Expenses of Agreement. The parties to this Agreement shall each bear
their own expenses incurred in connection with the preparation, execution and
delivery of Transaction Documents.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
themselves
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or by their respective representatives thereunto duly authorized the day and
year first above written.
CONCENTRIC NETWORK CORPORATION
By: /s/
--------------------------------------
Henry R. Nothhaft, President and CEO
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/
--------------------------------------
--------------------------------------
6
<PAGE> 1
EXHIBIT 10.45
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement") is made and entered into
this _____ day of _______________, 1999, by and between The Williams Companies,
Inc., a Delaware corporation ("Williams"), and Williams Communications Group,
Inc., a Delaware corporation ("Communications"),
WHEREAS, Communications plans to sell shares of its Class A Common
Stock, par value $.01 per share ("Class A Common Stock"), to the public in an
underwritten initial public offering ("Initial Public Offering") and to certain
other parties pursuant to private placements;
WHEREAS, Williams will continue to hold all of the issued and
outstanding Class B Common Stock ("Class B Common Stock"), par value $.01 per
share, of Communications after the closing of these sales of the Class A Common
Stock, and
WHEREAS, it is appropriate and desirable to set forth certain
agreements that will govern certain matters relating to the Initial Public
Offering and the conduct of business after its closing and the relationship of
Williams and Communications and their respective subsidiaries following the
Initial Public Offering,
NOW, THEREFORE, the parties agree, intending to be legally bound, as
follows:
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and Recitals hereof, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"ACTION" shall mean any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local or
foreign or international Governmental Authority or any arbitration or mediation
tribunal.
"ADMINISTRATIVE SERVICES AGREEMENT" means the Agreement attached hereto
as Exhibit 1.
"AGREEMENT" shall have the meaning ascribed to it in the Preamble.
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"ANCILLARY AGREEMENT" shall mean and include the Administration
Services Agreement, the Registration Rights Agreements, the Tax Sharing
Agreement, the Cross-License Agreement, the Data Processing Agreement, the
Indemnification Agreement, and the Operation, Maintenance and Repair Agreement.
"BUSINESS DAY" means any calendar day which is not a Saturday, Sunday
or public holiday under the laws of the State of New York.
"CLOSING" means the consummation of the purchase and sale of shares of
the Class A Common Stock pursuant to the Initial Public Offering.
"CLOSING DATE" means the date on which the Closing occurs.
"COMMUNICATIONS ACTIVITIES" shall mean and include all business
activities and lines of business conducted by any member of the Communications
Group on the Closing Date that is not a member of the Williams Group at the
Closing Date; provided however, that until such time, if ever, as Communications
shall acquire the Lightel Investment, the Williams Group's activities with
respect to the Lightel Investment, including the making of any additional
investment in Lightel, shall not be deemed to be included in Communications
Activities.
"COMMUNICATIONS GROUP" shall mean Communications and its direct and
indirect subsidiaries.
"CROSS-LICENSE AGREEMENT" means the Agreement attached hereto as
Exhibit 4.
"DATA PROCESSING AGREEMENT" means the Agreement attached hereto as
Exhibit 5.
"EMPLOYEE BENEFITS AGREEMENT" means the Agreement attached hereto as
Exhibit 8.
"ENERGY ACTIVITIES" shall mean and include all business activities and
lines of business conducted by any member of the Williams Group on the Closing
Date that is not a member of the Communications Group at the Closing Date;
provided however, that after such time, if ever, as Communications shall acquire
the Lightel Investment, the Communications Group's activities with respect to
the Lightel Investment, including the making of any additional investment in
Lightel, shall not be deemed to be included in Energy Activities.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory administrative or governmental authority.
"GROUP" means the Communications Group or the Williams Group, as the
context requires.
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"INDEMNIFICATION AGREEMENT" means the Agreement attached hereto as
Exhibit 6.
"INFORMATION" means any Information, whether or not patentable or
copyrightable in written, oral or electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototype samples, computer date, disks, diskettes, tapes, computer programs or
other software, marketing plans, customer names, Communications by or to
attorneys, memos and other materials prepared by attorneys and any other
technical, financial employee or business information or data.
"LIGHTEL" means Lightel S.A. -- Technologic da Informacao.
"LIGHTEL INVESTMENT" means the equity and debt investments of Williams
in Lightel from time to time.
"OPERATION, MAINTENANCE AND REPAIR AGREEMENT" means the Agreement
attached hereto as Exhibit 7.
"REGISTRATION RIGHTS AGREEMENT" means the Agreement attached hereto as
Exhibit 2.
"SEPARATION COMMITTEE" has the meaning specified in Section 3.01.
"TAX SHARING AGREEMENT" means the Agreement attached hereto as Exhibit
3.
"WILLIAMS GROUP" shall mean Williams and its direct and indirect
subsidiaries except the Communications Group.
ARTICLE II
CERTAIN BUSINESS MATTERS
2.01 NON-COMPETITION. (a) Except as permitted under this Section 2.01,
no member of the Communications Group shall, for a period of five years from the
Closing Date, engage in Energy Activities or any activities or lines of business
similar to Energy Activities.
(b) Except as permitted under this Section 2.01, no member of the
Williams Group shall, for a period of five years from the Closing Date, engage
in Communications Activities.
(c) No member of the Communications Group or the Williams Group shall
have any duty to refrain from doing business with any potential or actual
supplier or customer with any member of the other Group or engage in or refrain
from any other
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<PAGE> 4
activities whatsoever relating to any of the potential or actual customers or
suppliers of the other Group except as provided herein.
(d) Notwithstanding the other provisions of this Section 2.01 to the
contrary, the Williams Group, on the one hand, and the Communications Group, on
the other hand, shall be permitted to pursue business opportunities that are
reserved to the other Group if the Group permitted to pursue such opportunities
shall determine not to pursue them. In this regard, each party agrees that if
one of the parties (the "proposing party") notifies in writing the other party
(the "receiving party") that the proposing party desires to pursue an
opportunity that the proposing party is prohibited from pursuing under this
Section 2.01, the receiving party shall notify the proposing party (i) within
ten (10) Business Days following its receipt of the proposing party's notice
whether the receiving party intends in good faith to pursue the same opportunity
and (ii) promptly following any subsequent determination by the receiving party
not to pursue such opportunity of such determination. The proposing party shall
be permitted to pursue an opportunity as to which it has given a notice pursuant
to this Section 2.01(d) in the event that (i) the receiving party fails to
notify the proposing party within the required period of the receiving party's
good faith intention to pursue such opportunity or (ii) the receiving party
notifies the proposing party of the receiving party's determination not to
pursue such opportunity.
(e) Notwithstanding the other provisions of this Section 2.01 to the
contrary, the Williams Group, on the one hand, and the Communications Group, on
the other hand, shall be permitted to make acquisitions of and investments in
any entity engaged in activities that are reserved to the other Group provided
that those activities that are reserved to the other Group represented in such
entity's most recently completed fiscal year not more than [30]% of the
consolidated [revenues][net income] of the entity being acquired or in which the
investment is being made. [In the event that the Williams Group or the
Communications Group makes such an acquisition and in connection therewith
acquires all of the equity of the activities reserved to the other Group, it
will provide to the other Group a right of first offer to acquire such
activities should such activities be disposed of prior to five years following
the Closing Date.]
2.02 EXCHANGE OF INFORMATION. (a) Each of Williams and Communications
on behalf of its respective Group agrees to provide or cause to provide to the
other Group at any time after the Closing as soon as reasonably practicable
after written notice therefor any Information in the possession or in control of
such respective Group which the requesting party reasonably needs: (i) to comply
with reporting, disclosure, filing or other requirements imposed on the
requesting party (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii) for
use in any other judicial, regulatory, administrative tax or other proceedings
or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or
other similar requirements, or (iii) to comply with its obligations under this
Agreement or any similar Agreements; provided, however, that
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in the event that any party determines that any such a provision of Information
could be commercially detrimental, violate any law or Agreement, or waive any
attorney-client privilege, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.
(b) After the Closing Date, Communications shall have access during
regular business hours (as in effect from time to time) to the documents and
objects of historical significance that relate to the Communications Business
that are located in the Williams records. Communications may obtain copies (but
not originals) of documents for bona fide business purposes. Communications
shall pay $[___] per hour for archives research services. Nothing herein should
be deemed to restrict the access of any member of the Williams Group to any such
documents or objects or to impose any liability on any member of the Williams
Group if any such documents or objects are not maintained or preserved by
Williams.
(c) After the date hereof, (i) Communications shall maintain and effect
at its own cost and expense adequate systems and controls to the extent
necessary to enable members of the Williams Group to satisfy their respective
reporting, accounting, audit and other obligations, and (ii) Communications
shall provide or cause to be provided to Williams such form as Williams shall
request at no charge to Williams all financial and other data and information
that Williams determines necessary in order to prepare Williams' financial
statements and reports or filings with any Governmental Authority.
2.03 OWNERSHIP OF INFORMATION. Any Information owned by one Group that
is provided to a requesting party pursuant to this Agreement shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement should be construed as granting or
conferring rights or licenses or otherwise in any such Information.
2.04 COMPENSATION FOR PROVIDING INFORMATION. The party requesting such
Information agrees to reimburse the other party for the reasonable cost, if any,
of creating, gathering or copying such Information, to the extent that such
costs are incurred for the benefit of the requesting party. Except as may be
otherwise specifically provided elsewhere in this Agreement or any other
Agreement between the parties, such cost shall be computed in accordance with
the providing party's standard methodology and procedures.
2.05 RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Agreement after the Closing Date, the parties agree
to use their reasonable best efforts to retain all Information in their
respective possession or control in accordance with the records retention
policies of Williams as in effect of the Closing Date as such may from time to
time be changed. No party will destroy or permit any of its subsidiaries to
destroy any Information which the other party may have the right to obtain
pursuant to this Agreement prior to the third anniversary of the
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Closing Date without first using its reasonable best efforts to notify the other
party of the proposed destruction and giving the other party the opportunity to
take possession of such Information prior to such destruction; provided,
however, that in the case of any Information relating to Taxes or to
environmental liabilities, such period shall be extended to expiration of the
applicable statute of limitations (giving effect to any extensions thereof).
2.06 LIMITATION OF LIABILITY. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Agreement which is an estimate or forecast, or which is based on an
estimate or forecast, is found to be inaccurate in the absence of willful
misconduct by the party providing such Information. No party shall have any
liability to any other party if any Information is destroyed after the
reasonable best efforts by such party to comply with the provisions of this
Agreement.
2.07 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights
and obligations granted under this Agreement are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information as set forth in any other agreement
between the parties.
2.08 PRODUCTION OF WITNESSES, RECORDS AND COOPERATION. After the
Closing Date, taking the case of an adversarial action by one party against
another party, which shall be governed by such discovery rules as may be
applicable under Section III or otherwise, each party hereto shall use its
reasonable best efforts to make available to each other party upon written
request the former, current and future directors, officers, employees, other
personnel and agents and the members of its respective Group as witnesses, and
any books, records or other documents within its control or which it otherwise
has the ability to make available, to the extent that any such person (given
consideration to business demands of such directors, officers, employees, other
personnel and agents) or books, records or other documents may be reasonably
required in connection with any Action in which the requesting party may from
time to time be involved regardless of whether such Action is a matter with
respect to its indemnification may be sought. The requesting party shall bear
all costs and expenses (including allocated costs of in-house counsel and other
personnel) in connection therewith.
2.09 CONFIDENTIALITY. Each of the parties hereto on behalf of itself
and each member of its respective Group agrees to hold and to cause its
respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives to hold in strict confidence with at least
the same degree of care that applies to Williams confidential and proprietary
information pursuant to policies in effect and practices in place on the Closing
Date, all information concerning each other Group that is either in its
possession (including Information in its possession prior to
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the Closing Date) or furnished by any such group or its respective directors,
officers, employees, agents, accountants, counsel or other advisors and
representatives at any time pursuant to this Agreement and shall not use any of
such Information other than for purposes expressly permitted hereunder.
2.10 PROTECTIVE ARRANGEMENTS. In the event that any party and any
member of its Group either determines on the advice of its counsel that it is
required to disclose any Information pursuant to applicable law or receives any
demand under lawful process or from any Governmental Authority to disclose or
provide Information of any other party (or any other member of any other party's
Group) that is subject to the confidentiality provisions hereof, such party
shall notify the other party prior to disclosing or providing such Information
and shall cooperate at the expense of the requesting party in seeking any
reasonable protective arrangements requested by such other party. Subject to the
foregoing, the Person that receives such request may thereafter disclose or
provide Information to the extent required by such law (as so advised by
counsel) by lawful process of such Governmental Authority.
ARTICLE III
SEPARATION COMMITTEE AND ARBITRATION
3.01 SEPARATION COMMITTEE. Immediately after the Closing, Williams and
Communications shall form a committee (the "Separation Committee") comprised of
one representative designated from time to time by the general counsel of
Communications and one representative designated from time to time by the
general counsel of Williams. The Separation Committee shall be responsible for
resolving any and all disputes between any member of the Williams Group and any
member of the Communications Group arising with respect to any matter, whether
based on contract, tort, statute or otherwise (collectively, "Disputes"),
including any Dispute as to (i) whether any Action or other Liability is a
Williams Liability or a Communications Liability, (ii) whether any asset belongs
to a member of the Williams Group or the Communications Group, (iii) the
interpretation of any provision of this Agreement or any Ancillary Agreement,
and (iv) such matters as are contemplated by this Agreement or any Ancillary
Agreement to be resolved by the Separation Committee. In the event of any such
Dispute, each member of the Williams Group and the Communications Group shall
have the right to refer in writing such Dispute to the Separation Committee for
resolution. The Separation Committee shall be required to render a written
decision with respect to any Dispute within thirty (30) days of its receipt of
referral. The decision of the Separation Committee with respect to any Dispute
shall be binding on the Williams Group and the Communications Group and their
respective successors and assigns. In the event that the Separation Committee is
unable to reach a unanimous determination as to any Dispute to which it is
referred within thirty (30) days of such referral, each member of the Williams
Group and Communications Group involved in such Dispute shall have the right to
submit such Dispute to arbitration in accordance
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with the procedures set forth below. All out-of-pocket expense and costs
incurred by any member of the Williams Group or any member of the Communications
Group in connection with the procedures set forth in this section shall be borne
by the party incurring such expenses and costs.
3.02 AGREEMENT TO ARBITRATE. Except as otherwise specifically provided
in any Ancillary Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article III shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Ancillary Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties relating hereto or thereto,
between or among any member of the Williams Group or the Communications Group.
Each party agrees on behalf of itself and each member of its respective Group
that the procedures set forth in this Article III shall be the sole and
exclusive remedy in connection with any dispute, controversy or claim relating
to any of the foregoing matters and irrevocably waives any right to commence any
Action in or before any Governmental Authority. Each party on behalf of itself
and each member of its respective Group irrevocably waives any right to any
trial by jury with respect to any claim, controversy or dispute set forth in the
first sentence of this Section 3.01.
ARTICLE IV
FURTHER ASSURANCE AND ADDITIONAL COVENANTS
4.01 FURTHER ASSURANCES. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
its reasonable best efforts, prior to, on and after the Closing Date, to take,
or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the Closing
Date, each party hereto shall cooperate with the other parties, and without any
further consideration, but at the expense of the requesting party, to execute
and deliver, or use its reasonable best efforts to cause to be executed and
delivered, all instruments, including instruments of conveyance, assignment and
transfer, and to make all filings with, and to obtain all consents, approvals or
authorizations of any Governmental Authority or any other Person under any
permit, license, agreement, indenture or other instrument (including any
consents or governmental approvals), and to take all such other actions as such
party may reasonably be requested to take by any other party hereto from time to
time, consistent with the terms of this Agreement and the Ancillary
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Agreements, in order to effectuate the provisions and purposes of this Agreement
and the Ancillary Agreements and the transfers of assets and the assignment and
assumption of liabilities and the other transactions contemplated hereby and
thereby. Without limiting the foregoing, each party will, at the reasonable
request, cost and expense of any other party, take such other actions as may be
reasonably necessary to vest in such other party good and marketable title, free
and clear of any security interest, if and to the extent it is practicable to do
so.
(c) Prior to the Closing Date, if one or more of the parties identifies
any commercial or other service that is needed to assure a smooth and orderly
transition of the businesses in connection with the consummation of the
transactions contemplated hereby, and that is not otherwise governed by the
provisions of this Agreement or any Ancillary Agreement, the parties will
cooperate in determining whether there is a mutually acceptable arm's-length
basis on which one or more of the other parties will provide such service.
(d) Communications hereby assumes that portion of Williams' obligations
related to Communications and its subsidiaries under both: (i) that certain
agreement between Williams WPC - I, Inc. ("WPC") and The Williams Companies,
Inc., dated September 21, 1998, whereby Williams compensates WPC for
performances of services by WPC on behalf of Communications and its
subsidiaries; and (ii) that certain agreement among Williams Risk Management
L.L.C. ("WRM") and The Williams Companies, Inc., and Williams WPC - I, Inc.,
dated September 21, 1998, whereby Williams compensates WRM for performance of
Williams' risk management obligations on behalf of Communications and its
subsidiaries.
ARTICLE V
INSURANCE MAINTAINED BY WILLIAMS
5.01. (a) Williams shall continue to offer and to provide to the
members of the Communications Group the insurance coverage described in Exhibit
8 hereto, and any other insurance coverage that members of the Communications
Group may from time to time reasonably request, to the extent such insurance is
commercially suitable. Williams shall offer and provide such insurance coverage
on premium and coverage terms that are consistent with past practices or
practices applied to Williams and its subsidiaries. It is understood that some
of the insurance coverages listed in Exhibit 8 may include the interests of
Williams and its subsidiaries as insureds, which interests shall be governed by
and terminated in accordance with past practices. Williams' obligation pursuant
to this Section 5.01 shall terminate ninety (90) days after the date which
members of the Williams Group shall cease to own capital stock representing in
the aggregate more than 50% of the voting power of the outstanding voting stock
of Communications; provided that no such termination shall have the effect of
shortening or terminating the period of coverage of any such insurance policy
then currently in
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<PAGE> 10
effect; and provided further, that Williams shall cooperate with the members of
the Communications Group after such date to find mutually acceptable
arrangements whereby the insurance coverage referred to in this Section shall
continue to be made available to the members of the Communications Group if they
so choose.
(b) Communications shall be responsible for any and all claims,
liabilities and losses against it (and related expenses), including the
deductibles (and self-insurance retention) applicable to the insurance coverage
referred to in Section 5.01(a). Unless otherwise mutually agreed to in writing,
Williams shall have the sole and absolute authority to administer any and all
claims filed under any policy referred to in this Article V and any other
insurance coverage or self-insurance relating to periods prior to the effective
date of this agreement, against any member of the Communications Group,
including, without limitation, decisions regarding the settlement of any and all
claims.
ARTICLE VI
EMPLOYEE BENEFITS
6.01 EMPLOYEE BENEFIT PLAN. The relationship of the parties with
respect to certain matters relating to employees and employee benefits will be
governed by the Employee Benefits Agreement attached hereto as Exhibit 8.
ARTICLE VII
EFFECTIVENESS
7.01 EFFECTIVENESS. This Agreement shall become effective at the
Closing.
ARTICLE VIII
SUCCESSORS AND ASSIGNS
8.01 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person without the prior written consent of the other party hereto.
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<PAGE> 11
ARTICLE IX
NO THIRD-PARTY BENEFICIARIES
9.01 NO THIRD-PARTY BENEFICIARIES. Except for the persons entitled to
indemnification pursuant to Article II or Article III hereof, each of whom is an
intended third-party beneficiary hereunder, nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
ARTICLE X
ENTIRE AGREEMENT
10.01 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
ARTICLE XI
AMENDMENT
11.01 AMENDMENT. This Agreement may not be amended except by an
instrument signed by the parties hereto.
ARTICLE XII
WAIVERS
12.01 WAIVERS. No waiver of any term shall be construed as a subsequent
waiver of the same term, or a waiver of any other term, of this Agreement. The
failure of any party to assert any of its rights hereunder will not constitute a
waiver of any such rights.
ARTICLE XIII
SEVERABILITY
13.01 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
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<PAGE> 12
ARTICLE XIV
HEADINGS
14.01 HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
ARTICLE XV
NOTICES
15.01 NOTICES. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete: (i) if
hand delivered, on the date of delivery; (ii) if by mail, on the fourth Business
Day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid; (iii) if sent by Federal Express
or equivalent courier service, on the next Business Day; or (iv) if by
telecopier, upon receipt by sender of confirmation of successful transmission.
Such notices shall be addressed to the parties at the following address or at
such other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
If to Williams:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: William G. von Glahn
Fax No. 918/573-5942
If to Communications:
Williams Communications Group, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: David P. Batow
Fax No.: 918/573-3005
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ARTICLE XVI
GOVERNING LAW
16.01 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with, the laws of the State of Oklahoma, without giving effect to
the principles of conflict of laws of such state or any other jurisdiction.
ARTICLE XVII
COUNTERPARTS
17.01 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first written above.
WILLIAMS COMMUNICATIONS GROUP, INC.
By:
--------------------------------
Name:
Title:
THE WILLIAMS COMPANIES, INC.
By:
--------------------------------
Name:
Title:
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<PAGE> 14
EXHIBIT 8
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT (this "Agreement") is made
and entered into as of ____________________________, 1999, by and between The
Williams Companies, Inc., a Delaware corporation ("Williams"), and Williams
Communications Group, Inc., a Delaware corporation ("Communications").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Communications has
determined that it is appropriate and desirable for Communications to issue
shares of its Class A Common Stock, par value $0.01 per share, to the public in
an initial public offering (the "Initial Public Offering"); and
WHEREAS, each of Williams and Communications has determined
that it is desirable to set forth herein certain agreements that will govern the
relationship of the parties hereto following the Initial Public Offering with
respect to employees and employee benefits, the terms of which have not resulted
from arms length negotiations between the parties, and accordingly, such terms
may be in some respects less favorable to Communications than those that it
could obtain from unaffiliated third parties.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
SECTION I
Definitions
SECTION 1.01 Definitions. Whenever used in this Agreement, the
following terms shall have the following meanings, and the definition of such
terms are applicable to the singular as well as the plural forms of such terms
and to the masculine as well as to the feminine and neutral genders of such
terms:
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Benefit Plans" shall have the meaning specified in Section
2.01.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the United States Treasury regulations promulgated thereunder,
including any successor legislation.
"Communications" shall mean Williams Communications Group,
Inc.
<PAGE> 15
"Communications Affiliated Group" shall mean, collectively,
Communications and all its direct and indirect Subsidiaries now or hereafter
existing.
"Communications Benefit Plans" shall have the meaning
specified in Section 2.01.
"Communications Business" shall mean the business of any (i)
division, Subsidiary or enterprise of the Communications Affiliated Group
managed or operated as of the date of this Agreement or any prior or future time
by any member of the Communications Affiliated Group, and (ii) entities acquired
or established by or for the Communications Affiliated Group after the date of
this Agreement.
"Communications Employees" shall mean those employees, former
employees, retirees, agents, and subcontractors of the Communications Affiliated
Group.
"Communications Expenses" shall mean (i) all costs accrued or
incurred by Communications in respect of the Communications Benefit Plans and
the Communications Employees, including, but not limited to, all costs related
to the participation of a Communications Employee in the Williams Benefit Plans,
(ii) any expenses relating to fixed assets (including any costs for furniture
and personal computers), (iii) any miscellaneous expenses (including insurance,
travel and entertainment, advertising and licenses) accrued or incurred by
Communications and related to the businesses of the parties hereto, and (iv) any
other corporate costs incurred by Communications.
"Communications Liabilities" shall mean, collectively, (i) all
the Liabilities of the Communications Affiliated Group under this Agreement,
including its allocated portion of Williams Expenses, (ii) all the Liabilities
of the parties hereto or their respective Subsidiaries (whenever arising whether
prior to, at or following the closing of the Effective Date) arising out of or
in connection with or otherwise relating to the management or conduct, before or
after the closing on the Effective Date, of the Communications Business, and
(iii) all other Liabilities based upon, arising out of or in connection with or
otherwise relating to any businesses conducted at any time by the Communications
Affiliated Group.
"Effective Date" shall mean the date on which the Initial
Public Offering is consummated.
"Employee Services" shall have the meaning specified in
Section 2.01.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Event" shall have the meaning specified in Section
2.04(e).
"Initial Public Offering" shall have the meaning specified in
the preamble to this Agreement.
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"Internal Revenue Service" shall mean the United States
Internal Revenue Service.
"Liabilities" shall mean any and all debts, liabilities and
obligations (relating to performance or otherwise), absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising, including those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order or
consent decree of any court, any governmental or other regulatory or
administrative agency or commission or any award of any arbitration tribunal,
and those arising under any contract, guarantee, commitment or undertaking.
"Ownership Reduction Date" shall mean the date on which
Williams and Communications cease to be in the same "controlled group of
corporations" as defined in Section 1563(a) of the Code.
"Person" shall mean any individual, corporation, partnership,
joint venture, limited liability company, association or other business entity
and any trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Records" shall have the meaning specified in Section 3.01(a).
"Shared Services Employee" means a Williams Employee who
provides services to both the Williams Affiliated Group and the Communications
Affiliated Group.
"Subsidiary" shall mean any corporation, partnership, joint
venture or other Person of which another Person (i) owns, directly or
indirectly, ownership interests sufficient to elect a majority of the board of
directors of such corporation, partnership, joint venture or other Person (or
Persons performing similar functions) (irrespective of whether at the time any
other class or classes of ownership interests of such corporation, partnership,
joint venture or other Person shall or might have such voting power upon the
occurrence of any contingency), or (ii) is a general partner or an entity
performing similar functions (e.g., a trustee or manager).
"Williams" shall mean The Williams Companies, Inc.
"Williams Affiliated Group" shall mean, collectively, Williams
and all its direct and indirect Subsidiaries now or hereafter existing, other
than the Communications Affiliated Group.
"Williams Benefit Plans" shall have the meaning specified in
Section 2.01.
"Williams Business" shall mean the businesses of (i) any
division, Subsidiary or enterprise of the Williams Affiliated Group managed or
operated as of the date of this Agreement or any prior or future time by any
member of the Williams Affiliated Group, and (ii) entities acquired or
established by or for the Williams Affiliated Group after the date of this
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<PAGE> 17
Agreement, provided that the term "Williams Business" shall not include the
Communications Business.
"Williams Controlled Group" shall mean, collectively, Williams
and all Persons of which at least eighty percent (80%) of (i) the total combined
voting power, or (ii) the total value of the outstanding capital stock or other
equity interests thereof is beneficially owned by Williams.
"Williams Employees" shall mean those employees, former
employees, retirees, agents, and subcontractors of the Williams Affiliated
Group.
"Williams Employee Services" shall have the meaning specified
in Section 2.01.
"Williams Expenses" shall mean (i) all costs accrued or
incurred by Williams in respect of the Williams Employee Services, Williams
Benefits Plans and Williams Employees, (ii) any expenses relating to fixed
assets (including any costs for furniture and personal computers), (iii) any
miscellaneous expenses (including insurance, travel and entertainment,
advertising and licenses) accrued or incurred by Williams and related to the
businesses of the parties hereto, and (iv) any other corporate costs (other than
any costs relating to the federal regular income tax liability of Williams'
consolidated group) incurred by Williams.
"Williams Liabilities" shall mean, collectively, (i) all the
Liabilities of the Williams Affiliated Group under this Agreement, and (ii) all
the Liabilities of the parties hereto or their respective Subsidiaries (whenever
arising whether prior to, at or following the closing on the Effective Date)
arising out of or in connection with or otherwise relating to the management or
conduct before or after the closing on the Effective Date of the Williams
Business, provided that the term "Williams Liabilities" shall not include the
Communications Liabilities.
SECTION 1.02 Other Definitional Provisions. The words
"hereof", "hereto", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; references to any Article, Section,
Exhibit or Schedule are references to Articles, Sections, Exhibits or Schedules
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
SECTION II
SERVICES AND OPERATIONS
SECTION 2.01 Services. (a) Beginning on the Effective Date and
continuing until the termination of this Agreement pursuant to Article V,
Williams shall make available, and shall cause the Williams Affiliated Group to
make available, to the Communications Affiliated Group the employee related and
the employee benefit related services set forth on Schedule 2.01(a)(i) (the
"Williams Employee
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<PAGE> 18
Services" and each, a "Williams Employee Service"), and Communications shall,
and shall cause its Subsidiaries to, utilize such Williams Employee Services in
the conduct of their respective businesses.
(b) Williams has agreed that certain Communications Employees
shall be eligible to continue to participate in the benefit plans and programs
described on Schedule 2.01(b)(i) to the extent that such Communications
Employees obtained rights under such benefit plans prior to the Effective Date
or may obtain rights under the terms of such benefits plans on or after the
Effective Date (collectively, "Williams Benefit Plans"). In addition, certain
Communications Employees shall be eligible to continue to participate in the
benefit plans and programs described on Schedule 2.01(b)(ii) to the extent that
such employees obtained rights under the terms of such benefit plans prior to
the Effective Date or may obtain rights under the terms of such benefit plans on
or after the Effective Date (collectively, the "Communications Benefit Plans"
and, together with the Williams Benefit Plans, the "Benefit Plans"). Williams
has agreed that it shall continue to provide the Williams Employee Services
described on Schedule 2.01(a)(i) with respect to those Communications Employees
participating in Williams Benefit Plans and with respect to the Communications
Benefit Plans until the Ownership Reduction Date. The Williams Employee Services
may be provided by (i) any employee of Williams or its Subsidiaries (other than
Communications and its Subsidiaries), or (ii) any third party designated by
Williams, in its sole discretion; provided, however, that notwithstanding any
such designation by Williams, Williams shall remain responsible in all respects
for the provision of the particular service or services to be provided by such
designated third party.
SECTION 2.02 Expansion, Reduction or Termination of Employee
Services. Except as otherwise provided in Section 6.01 or as otherwise agreed in
writing by the parties hereto, each of the Williams Employee Services provided
by Williams may be expanded, reduced or terminated upon the mutual agreement of
the parties hereto.
SECTION 2.03 Payment of Expenses. (a) Williams shall allocate
the portion of the Williams Expenses incurred on behalf of the Communications
Affiliated Group pursuant to actual expenses incurred to the extent reasonably
determinable, and in all other cases pursuant to allocation methodologies
determined on an annual basis by Williams, in its sole discretion, after
consultation with Communications, which evidence each such party's respective
fair and reasonable share of the Williams Expenses. Communications shall not be
required to make a payment for Williams Expenses if such expenses have been paid
to Williams under the Administrative Services Agreement.
(b) Communications shall pay all the Communications Expenses
incurred by Communications.
(c) Williams shall submit to Communications within thirty (30)
working days following the end of each month an invoice for all charges
associated with Williams Employee Services provided by Williams during the
preceding month, any adjustments for prior months and any other amounts payable
in respect of the preceding month. All invoices shall describe in reasonable
detail a description of the Williams Employee Services provided and the charges
associated therewith, any prior month adjustments and any other amounts that are
payable.
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Except as provided in Section 2.03(d), Communications shall remit payment on a
monthly basis to Williams on behalf of the Communications Affiliated Group for
its portion of all charges invoiced on or before the last working day of the
month in which the invoice is received in respect of Williams Expenses.
(d) In the event of a dispute as to an invoiced amount,
Communications shall promptly pay all undisputed amounts on each invoice, but
shall be entitled to withhold payment of any amount in dispute, and shall
promptly notify Williams of the disputed amount and the reasons each such charge
is so disputed. The parties agree to provide each other with sufficient records
and information that will enable the parties to resolve any such dispute and,
without limiting the rights and remedies of the parties hereunder, to negotiate
in good faith a resolution thereto.
(e) It is understood and agreed that the Williams Employee
Services provided hereunder will be substantially identical in nature and
quality (but not necessarily in amount) to the Williams Employee Services
performed by Williams during the year prior to the date of this Agreement,
except as may be required by virtue of Communications becoming a public company
after the Initial Public Offering.
(f) Performance of any Williams Employee Services will not be
required for the benefit of any entity other than the parties and their
respective Subsidiaries. Communications represents and agrees that it will use
the Williams Employee Services only in accordance with all applicable federal,
state and local laws, regulations and tariffs and in accordance with the
reasonable conditions, rules, regulations and specifications that are or may be
set forth in any manuals, materials, documents or instructions of the party
providing the Williams Employee Services.
(g) Any input or information required by either party in the
performance of the Williams Employee Services pursuant to the provisions of this
Agreement shall be provided by the other party or its Subsidiaries, as the case
may be, in a manner consistent with the practices employed by the parties during
the year prior to the date of this Agreement. If the failure to provide such
input or information renders the performance of the Williams Employee Services
impossible or unreasonably difficult, Williams may, upon reasonable notice,
refuse to provide such Williams Employee Services.
(h) With respect to Communications Employees, Shared Services
Employees, or employees of Williams or any of its Subsidiaries who worked
(either simultaneously or at different times) both in any business conducted by
Williams and its Subsidiaries, and in any business conducted by Communications
and its Subsidiaries prior to the Ownership Reduction Date, Communications shall
reimburse Williams, on demand or as otherwise directed, for all costs (or in the
case of a Shared Employee its proportionate share of all costs) as accrued or
incurred by Williams or members of the Williams Affiliated Group with respect to
such employees pursuant to the Benefit Plans or otherwise.
(i) The parties recognize that many of the Employee Services
provided to Communications by Williams Employees will be performed by Shared
Services Employees. At
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or prior to the Ownership Reduction Date, Communications shall pay Williams an
amount equal to its proportionate share of all projected liabilities with
respect to Shared Services Employees as determined from service records,
estimates, calculations and reasonable assumptions developed by Williams'
Actuary. For example, if the Actuary determines that the projected working
career of a Shared Services Employee is twenty-five (25) years and the Shared
Services Employee had performed fifty percent (50%) of his or her services for
Communications for a period of 12-1/2 years at the Ownership Reduction Date,
Communications will pay Williams twenty-five percent (25%) of the present value
of retiree medical, retiree life and other Liabilities associated with such
employee. Similarly, if the Shared Services Employee is projected to lose his or
her position with Williams due to the cessation of Williams Employee Services to
Communications, Communications shall reimburse Williams for its proportionate
share of severance and all other employee termination liabilities with respect
to such employee.
(j) Any expense incurred by either the Williams Affiliated
Group or the Communications Affiliated Group in connection with changing Benefit
Plans, creating new Benefit Plans, transferring employees, or complying with the
terms of this Agreement which are in any way related to an Ownership Reduction
Date shall be paid by Communications.
SECTION 2.04 Employees. (a) Plans and Services. Prior to the
Effective Date, eligible Communications Employees participated in certain
Williams Benefit Plans. On and after the Effective Date, eligible Communications
Employees shall continue to be eligible to participate in certain Williams
Benefit Plans, subject to the terms of the governing plan documents as
interpreted by the appropriate plan fiduciaries. On and after the Effective Date
and until the termination of this Agreement pursuant to Article V, subject to
regulatory requirements, Williams shall continue to provide Williams Employee
Services with respect to Communications Employees participating in Williams
Benefit Plans in substantially the same manner as it administered such plans
prior to the Effective Date and subject to Williams' right to terminate, amend
and modify such Benefit Plans pursuant to Sections 2.04(c).
(b) Direct Cost Reimbursement. Notwithstanding the provisions
of Section 2.03, if Williams provides Communications with at least five (5)
days' advance written notice, COMMUNICATION agrees to make funds available, as
and when required to be paid by Williams, to Williams so that Williams may make
contributions or payments to, for the account of, or in respect of current or
former employees or their spouses or other beneficiaries (i) under tax-qualified
or other benefit plans, or (ii) that are generally made on a predetermined
periodic basis.
(c) Changes; Additional Employee Services and Plan Terms.
Nothing contained in this Agreement shall be construed to limit the ability of
Williams or Communications to amend or modify any of the Williams Benefit Plans
or Communications Benefit Plans, respectively, consistent with the terms of such
plans, as determined in Williams' or Communications' sole discretion, as the
case may be, provided that Williams or Communications, as applicable, shall
provide at least forty-five (45) days' prior written notice to the other of any
proposed significant amendment to or modification of any Benefit Plan.
Communications may request additional services that, if agreeable to Williams,
shall be provided on a direct cost basis to Communications.
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(d) Regulatory Matters. Williams and Communications agree to
cooperate fully with each other in the administration and coordination of
regulatory and administrative requirements associated with the Benefit Plans
that apply either to the other party or jointly to each party hereto. Such
coordination, upon request, shall include: sharing payroll data for
determination of highly compensated employees, providing census information
(including accrued benefits) for purposes of running discrimination tests,
providing actuarial reports for purposes of determining the funded status of any
plan and providing for review of all summary plan descriptions, requests for
determination letters, Forms 5500, financial statement disclosures and plan
documents.
(e) Certain Notices. In the event there is an ERISA Event with
respect to Benefit Plans receiving Williams Employee Services, Williams shall
advise Communications as soon as reasonably practicable after Williams
determines the ERISA Event has occurred. For purposes of this Section 2.04(e),
an "ERISA Event" shall mean (i) the termination of a Benefit Plan or the filing
of a Notice of Intent to Terminate such a plan, in either case, under Section
4041(c) of ERISA; (ii) the institution of proceedings by the Pension Benefit
Guaranty Corporation (or any successor thereof) to terminate a Benefit Plan or
to appoint a trustee to administer such a plan or the receipt of notice by
Williams that such an action has been taken with respect to such a plan; (iii)
any substantial accumulated funding deficiency within the meaning of Section 412
of the Code or Section 302 of ERISA is incurred with respect to any Benefit Plan
sponsored by Williams and no waiver of that deficiency has been obtained from
the Internal Revenue Service; (iv) the Internal Revenue Service determines that
a Benefit Plan that is intended to be qualified under Section 401 of the Code
fails to meet the applicable requirements of the Code and disqualifies the plan;
or (v) an amendment to a Benefit Plan sponsored by Williams that results in a
significant underfunding described in Section 401(a)(29) of the Code or Section
307 of ERISA.
(f) Conflicts. In the event of a conflict between the terms of
this Section 2.04 and the terms of Section 2.01 hereof relating to providing
Services in connection with Benefit Plans, the terms of this Section 2.04 shall
prevail.
SECTION 2.05 Limitation of Liability. No member of the
Williams Affiliated Group, their respective controlling Persons, if any, and
their respective directors, officers, employees, agents or permitted assigns
(each, a "Williams Party"), shall be liable to any member of the Communications
Affiliated Group, their respective controlling Persons, if any, and their
respective directors, officers, employees, agents or permitted assigns (each, a
"Communications Party"), for any Liabilities, claims, damages, losses or
expenses, which constitute special, indirect, incidental or consequential
damages, of a Communications Party arising in connection with this Agreement,
the Employee Services or the Benefit Plans. The Williams Affiliated Group shall
be entitled to be indemnified by Communications, and shall be entitled to the
benefit of the provisions of the Indemnification Agreement which is attached as
an exhibit to the Separation Agreement, with respect to any and all claims,
losses, damages, Liabilities and expenses (including court costs and reasonable
attorney fees) incurred by Williams arising out of the Communications
Liabilities, the Communications Expenses, or the obligations of Communications
under this Agreement.
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SECTION 2.06 Williams Pension Plan.
(a) Following the Effective Date, Communications Employees,
who are eligible, shall continue to participate in the Williams Pension Plan on
the same terms and conditions as immediately prior to the Effective Date. At the
Ownership Reduction Date, Communications Employees shall cease to participate in
the Williams Pension Plan. Unless Williams elects to utilize the plan to plan
transfer option described below prior to the Ownership Reduction Date, the
Williams Pension Plan shall pay Communications Employees their vested accrued
benefits earned under the Williams Pension at the time and in the manner
provided in the Williams Pension Plan. If Williams elects such transfer option,
as soon as practicable after, and in any event within ninety (90) days after,
and effective as of, the Ownership Reduction Date, Communications shall
establish a defined benefit pension plan (with terms and conditions
substantially comparable in all material respects to the Williams Pension Plan)
and a related trust intended to qualify under Section 401(a) and Section 501(a)
of the Code (the "Communications Retirement Plan") under which all
Communications Employees who participated in the Williams Pension Plan
("Communications Retirement Plan Participants") shall participate. To implement
its election of the transfer option, Williams shall, within one hundred eighty
(180) days following the Ownership Reduction Date, but in no event prior to
receipt by Williams of written evidence of the establishment of the
Communications Retirement Plan and the related trust ("Communications Trust") by
Communications and either (A) the receipt by Williams of a copy of a favorable
determination letter issued by the Internal Revenue Service with respect to the
Communications Retirement Plan or (B) an opinion, in a form theretofore agreed
upon, of Communications? counsel to the effect that the terms of the
Communications Retirement Plan and Communications Trust qualify under Section
401(a) and Section 501(a) of the Code, direct the trustee of the trust under the
Williams Pension Plan ("Williams Trust") to transfer (the date of such transfer
hereinafter the "Transfer Date"), in cash or in kind, as agreed to by Williams
and Communications, from the Williams Trust to the trustee of the Communications
Trust, an amount estimated by an Actuary selected by Williams to equal ninety
percent (90%) of the Transfer Amount, as defined below. The "Transfer Amount"
shall mean an amount equal to the present value of the accrued benefits of the
Communications Retirement Plan Participants, as calculated by the Williams
actuary in accordance with Section 414(1) of the Code and the regulations
promulgated thereunder. As soon as practicable following the Transfer Date, but
in no event later than ninety (90) days after such date, Williams shall direct
the trustee of the Williams Trust to transfer to the trustee of the
Communications Trust the excess of the Transfer Amount over the actual amount
previously transferred, plus interest on such excess at six percent (6%)
compounded daily from the Transfer Date. Notwithstanding anything contained
herein to the contrary, no transfer of assets shall take place until the 31st
day following the filing of all required Forms 5310-A in connection therewith.
Upon the receipt of the Transfer Amount (i) Communications and the
Communications Retirement Plan shall assume the liabilities of the Williams
Pension Plan for accrued benefits of Communications Retirement Plan
Participants, theretofore the liability of the Williams Pension Plan, (ii)
Communications participation in Williams Pension Plan shall cease, (iii) neither
Communications nor any of its Subsidiaries shall have any liability with respect
to the Williams Pension Plan, (iv) neither Williams nor any of its Subsidiaries
shall have any liability with respect to the accrued benefits of Communications
Retirement Plan Participants and (v) Williams and the Williams Pension Plan
shall retain all
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liabilities for accrued benefits of Williams Pension Plan participants who are
not Communications Retirement Plan Participants.
(b) The calculation of the transfer amount by the Williams
actuary shall be determinative but shall be subject to review by Communications
and the Williams actuary shall provide the actuary selected by Communications
with all the documentation reasonably necessary for Communications to verify
such calculation. Communications and Williams shall provide each other with such
records and information as may be necessary or appropriate to carry out their
obligations under this Section or for the purposes of administration of the
Communications Retirement Plan and Williams Pension Plan and they shall
cooperate in the filing of documents required by the transfer of assets and
liabilities described herein.
(c) In no event shall any amount transferred to the trustee of
the Communications Retirement Plan be used for any purpose other than to provide
benefits to present or future employees of Communications, and in no event shall
any amount transferred to the trustee of the Communications Retirement Plan
revert to Communications directly or indirectly.
SECTION 2.07 Williams Investment Plan.
(a) Following the Effective Date, Communications Employees,
who are eligible, shall continue to participate in the Williams Investment Plan
on the same terms and conditions as applicable immediately prior to the
Effective Date. As soon as practicable after, and in any event within ninety
(90) days after, and effective as of, the Ownership Reduction Date,
Communications shall establish an employee stock ownership plan (with terms and
conditions substantially comparable in all material respects to the Williams
Investment Plan) and a related trust intended to qualify under Section 401(a),
Section 501(a), and Section 4975 of the Code (the "Communications Investment
Plan"). Effective as of the Ownership Reduction Date, all Communications
Employees who participated in the Williams Investment Plan ("Communications
Investment Plan Participants") shall participate in the Communications
Investment Plan. Williams shall, within one hundred eighty (180) days following
the Ownership Reduction Date, but in no event prior to receipt by Williams of
written evidence of the establishment of the Communications Investment Plan and
the related trust ("Communications Trust") by Communications and either (A) the
receipt by Williams of a copy of a favorable determination letter issued by the
Internal Revenue Service with respect to the Communications Investment Plan or
(B) an opinion, in a form theretofore agreed upon, of Communications' counsel to
the effect that the terms of the Communications Investment Plan and
Communications Trust qualify under Section 401(a) and Section 501(a) of the
Code, direct the trustee of the trust under the Williams Investment Plan
("Williams Trust") to transfer, in cash or in kind, as agreed to by Williams and
Communications, from the Williams Trust to the trustee of the Communications
Trust, an amount equal to the accrued benefits of the Communications Investment
Plan participants in accordance with Section 414(l) of the Code and the
regulations promulgated thereunder. Notwithstanding anything contained herein to
the contrary, no transfer of assets shall take place until the 31st day
following the filing of all required Forms 5310-A in connection therewith. Upon
the receipt of the transfer (i) Communications and the Communications Investment
Plan shall assume the liabilities of the Williams Investment Plan for
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<PAGE> 24
accrued benefits of Communications Investment Plan Participants, theretofore the
liability of the Williams Investment Plan, (ii) Communications participation in
Williams Investment Plan shall cease, (iii) neither Communications nor any of
its Subsidiaries shall have any liability with respect to the Williams
Investment Plan, (iv) neither Williams nor any of its Subsidiaries shall have
any liability with respect to the accrued benefits of Communications Investment
Plan participants, and (v) Williams and the Williams Investment Plan shall
retain all liabilities for accrued benefits of Williams Investment Plan
participants who are not Communications Investment Plan Participants. The
transfer shall not involve any Williams common stock held in a suspense account
or any loans which were used to acquire such stock.
(b) Communications and Williams shall provide each other with
such records and information as may be necessary or appropriate to carry out
their obligations under this Section or for the purposes of administration of
the Communications Investment Plan and Williams Investment Plan and they shall
cooperate in the filing of documents required by the transfer of assets and
liabilities described herein.
(c) In no event shall any amount transferred to the trustee of
the Communications Investment Plan be used for any purpose other than to provide
benefits to present or future employees of Communications, and in no event shall
any amount transferred to the trustee of the Communications Investment Plan
revert to Communications directly or indirectly.
SECTION 2.08 Non-qualified Plans. Following the Effective
Date, Communications Employees who are eligible shall continue to participate in
Williams Supplemental Retirement Plan (the "Williams Restoration Plan") through
December 31, 2000. As soon as practicable following the Effective Date, and in
any event no later than January 1, 2000, Communications shall establish a
benefit restoration plan (the "Communications Restoration Plan") relating to the
Williams Pension Plan for the benefit of the Communications Employees who were,
immediately prior to January 1, 2000, participating in the Williams Restoration
Plan or who become eligible for participation in the Communications Restoration
Plan on or after January 1, 2000. As of the Effective Date, Communications shall
assume and be solely responsible for the liabilities and obligations relating to
the Communications Employees arising under the Williams Restoration Plan.
SECTION 2.09 Other Williams Benefit Plans. Following the
Effective Date, Communications Employees who are eligible shall continue to
participate in the various Williams medical, life, and other Williams Benefit
Plans listed on Schedule 2.09 (the "Other Plans"). As of the Effective Date,
Communications shall assume and be solely responsible for the liabilities and
obligations relating to the Communications Employees arising under the Other
Plans. Prior to Ownership Reduction Date, Communications shall establish plans
with terms and conditions substantially comparable in all material respects to
the Other Plans (the "Communications Other Plans"). Upon the Ownership Reduction
Date, all benefits of Communications Employees who participated in the Other
Plans shall be paid solely by the Communications Other Plans.
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<PAGE> 25
SECTION 2.10 Transfer of Employees. Williams employees who
transfer to and become employed by Communications or any of its Subsidiaries and
Communications employees who transfer to and become employed by Williams or any
of its Subsidiaries, in either case on the United States payroll, prior to the
Ownership Reduction Date shall be transferred in accordance with the terms of
the transfer guidelines established by Williams consistent with practices in
effect immediately prior to the Effective Date (the "Transfer Guidelines") and
such employees and their beneficiaries and survivors will be granted the
benefits provided by the provisions of the applicable Benefit Plans pertaining
to employees who have been transferred between Williams and Communications, as
provided in, and subject to the terms and conditions of, the transfer
guidelines.
SECTION III
INFORMATION
SECTION 3.01 Provision of Corporate Records. Subject to
applicable law and privileges, from and after the Effective Date, upon the prior
written request by Williams for specific and identified agreements, documents,
books, records or files, including, without limitation, computer files,
microfiche, tape recordings and photographs (collectively, "Records"), relating
to or affecting Williams, including, but not limited to, the Records concerning
Communications Employees and Communications Benefit Plans necessary for Williams
to perform the Williams Employee Services. Communications shall arrange, as soon
as reasonably practicable following the receipt of such written request, for the
provision of appropriate copies of such Records (or the originals thereof if the
party making the request has a reasonable need for such originals) in the
possession of Communications or any of its Subsidiaries, but only to the extent
such items are not already in the possession of the requesting party.
SECTION 3.02 Access to Information. Subject to applicable law
and privileges, from and after the Effective Date, Communications shall afford
to Williams and its authorized accountants, counsel and other designated
representatives reasonable access during normal business hours, subject to
appropriate restrictions for classified, privileged or confidential information,
to the personnel, properties, books and records of Communications and its
Subsidiaries insofar as such access is reasonably required by Williams.
SECTION 3.03 Reimbursement; Other Matters. Except to the
extent otherwise contemplated by any Ancillary Agreement, a party providing
Records or access to information to another party hereto pursuant to this
Article III shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts, relating to
supplies, disbursements and other out-of-pocket expenses, as may be reasonably
incurred in providing such Records or access to information.
SECTION 3.04 Confidentiality. Each of Communications and
Williams shall not (without the prior written consent of the other party) use or
permit the use of, and shall hold, and shall cause its consultants and advisors
to hold, in strict confidence, all information concerning the other party in its
possession, its custody or under its control (except to the extent that (a) such
information has been in the public domain through no fault of such party, (b)
such
12
<PAGE> 26
information has been later lawfully acquired from a source other than the other
party to this Agreement, or (c) this Agreement or any other Ancillary Agreement
permits the use or disclosure of such information), and each party shall not
(without the prior written consent of the other) otherwise release or disclose
such information to any other Person, except to such party's officers,
directors, employees, auditors, attorneys and agents, in each case on a
confidential and need-to-know basis, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure. To
the extent that a party hereto is compelled by judicial or administrative
process to disclose such information under circumstances in which any
evidentiary privilege may be available, such party agrees to assert such
privilege in good faith prior to making such disclosure. Each of the parties
hereto agrees to consult immediately with the other party in connection with any
such judicial or administrative process, including, without limitation, in
determining whether any privilege is available, and further agrees to allow each
such relevant party and its counsel to participate in any hearing or other
proceeding (including, without limitation, any appeal of an initial order to
disclose) in respect of such disclosure and assertion of privilege.
SECTION 3.05 Destruction of Records. In the event that
Williams intends to destroy any records relating to the employment of, or
participation in Williams Benefit Plans by, Communications Employees (including,
but not limited to, personnel records and records relating to medical and other
health and welfare benefit plans), Williams shall provide written notice to
Communications of its intention to do so at least ninety (90) days in advance of
the date that such destruction is expected to be undertaken. Communications
shall have thirty (30) days after receiving such notice to advise Williams in
writing whether Communications wishes to obtain copies of such records
pertaining to its employees. If Communications desires such records, Williams
shall, at the sole expense of Communications, either provide the originals
thereof to Communications or shall copy such records and provide them to
Communications.
SECTION IV
ASSUMPTION AND SATISFACTION OF LIABILITIES
SECTION 4.01 From and after the date hereof, (i) Williams
shall assume, pay, perform and discharge all Williams Liabilities, but it shall
be entitled to recover from Communications the amounts due under Sections 2.03
and 2.04 hereof, and (ii) Communications shall assume, pay, perform and
discharge all Communications Liabilities. Consistent with this agreement,
Communications or the appropriate Subsidiary of Communications, shall assume all
Liabilities arising out of or resulting from any claim by any Communications
Employee which arises under federal, state or local statute (including, without
limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1990, the Equal Pay Act, the
Americans with Disabilities Act of 1990, the Employee Retirement Income Security
Act of 1974 and all other statutes regulating the terms and conditions of
employment), regulation or ordinance, under the common law or in equity
(including any claims for wrongful discharge or otherwise), or under any policy,
agreement, understanding or promise, written or oral, formal or informal,
between Williams or Communications (or any Subsidiary of Williams or
Communications) and the Communications Employee, whether arising out of
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<PAGE> 27
actions, events or omissions that occurred (or, in the case of omissions, failed
to occur) prior to, or after, the Effective Date. Subject to its rights under
Sections 2.03 and 2.04 hereof, Williams or an appropriate Subsidiary of Williams
shall assume all liabilities arising out of or resulting from any claim by any
Williams Employee which arises under federal, state or local statute (including,
without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1991, the Age Discrimination in Employment Act of 1990, the Equal Pay
Act, the Americans with Disabilities Act of 1990, the Employee Retirement Income
Security Act of 1974 and all other statutes regulating the terms and conditions
of employment), regulation or ordinance, under the common law or in equity
(including any claims for wrongful discharge or otherwise), or under any policy,
agreement, understanding or promise, written or oral, formal or informal,
between Williams or any of its Subsidiaries and the Williams Employee, whether
arising out of actions, events or omissions that occurred (or, in the case of
omissions, failed to occur) prior to, or after, the Effective Date.
SECTION V
TERM OF AGREEMENT
SECTION 5.01 Termination. (a) Except as otherwise provided in
this Article V or as otherwise agreed to in writing by the parties hereto, this
Agreement shall be subject to termination by either Williams or Communications,
upon the Ownership Reduction Date.
(b) Williams may terminate any Williams Employee Services at
any time if Communications shall have failed to perform any of its material
obligations under this Agreement relating to any such Williams Employee
Services, provided that Williams has notified Communications in writing of such
failure and such failure shall have continued for a period of sixty (60) days
after receipt by Communications of notice of such failure.
(c) Communications may terminate any Williams Employee
Services at any time if Williams shall have failed to perform any of its
material obligations under this Agreement relating to any such Williams Employee
Services, provided that Communications has notified Williams in writing of such
failure and such failure shall have continued for a period of sixty (60) days
after receipt by Williams of notice of such failure.
SECTION 5.02 Effect of Termination. (a) Other than as required
by law, upon termination of any Employee Services pursuant to Section 5.01, and
upon termination of this Agreement in accordance with its terms, Williams will
have no further obligation to provide the terminated Employee Service (or any
Employee Services, in the case of termination of this Agreement) and
Communications shall have no obligation to pay any costs relating to such
Employee Services or make any other payments hereunder, provided that
notwithstanding any such termination (i) Communications shall remain liable to
Williams for costs owed and payable in respect of Employee Services provided
prior to the effective date of such termination or any costs attributable to,
arising out of or in connection with such termination (including, but not
limited to, severance costs, long-term lease obligations and rent), and (ii)
Williams shall continue to charge Communications for administrative and other
costs relating to benefits provided after
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<PAGE> 28
but incurred prior to the termination of any Employee Services and other
services required to be provided after the termination of such Employee Service
and Communications shall be obligated to pay such costs in accordance with the
terms of this Agreement.
(b) Following termination of any Williams Employee Services
under this Agreement, Williams and Communications agree to cooperate in
providing for an orderly transition of such Williams Employee Services to
Communications or to a successor service provider. Without limiting the
foregoing, Williams agrees to provide to Communications, within ninety (90) days
of the termination of all Williams Employee Services in respect of any
Communications Employees participating in Williams Benefit Plans, copies in a
format designated by Williams, of all records relating directly or indirectly to
benefit determinations of the participants in Benefit Plans, including
compensation and service records or records required to be maintained by law,
and (iii) Williams and Communications shall work with the other party in
developing a reasonable transition schedule with respect thereto.
SECTION 5.03 Survival of Termination. Notwithstanding any
provisions in this Agreement to the contrary, any obligations of or covenants
and agreements made by each of Williams and Communications under this Article V,
Article III, Article IV, Section 2.03, and Section 3.04 shall survive (i) the
sale or other transfer by either of them of any assets or businesses or the
assignment by either of them of any Liabilities and (ii) the termination of this
Agreement, and shall continue in full force and effect (subject to the terms of
such provisions).
SECTION VI
MISCELLANEOUS
SECTION 6.01 Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. In the event of any inconsistency
between this Agreement and any Exhibit or Schedule hereto, such Exhibit or
Schedule shall prevail. Notwithstanding any other provisions in this Agreement
to the contrary, in the event and to the extent that there shall be a conflict
between the provisions of this Agreement and the provisions of any Ancillary
Agreement, such Ancillary Agreement shall control.
SECTION 6.02 Ancillary Agreements. This Agreement is not
intended to address, and should not be interpreted to address, the matters
specifically and expressly covered by the Ancillary Agreements. In the event of
any inconsistency between this Agreement and any Ancillary Agreement, the terms
of such Ancillary Agreement shall govern.
SECTION 6.03 Waivers. The failure of either party to require
strict performance by the other party of any provision in this Agreement shall
not waive or diminish that party's right to demand strict performance thereafter
of that or any other provision hereof.
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<PAGE> 29
SECTION 6.04 Assignment. This Agreement shall be assignable,
in whole in connection with a merger or consolidation or the sale of all or
substantially all the assets of a party hereto so long as the resulting,
surviving or transferee entity assumes all the obligations of the relevant party
hereto by operation of law or pursuant to an agreement in form and substance
reasonably satisfactory to the other party to this Agreement. Otherwise this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by any party hereto without the prior written consent of the others, and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void.
SECTION 6.05 Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective permitted successors and permitted assigns.
SECTION 6.06 Subsidiaries. Each of the parties hereto shall
cause to be performed, and hereby guarantees the performance of, all actions,
agreements, covenants and obligations set forth herein to be performed by any
Subsidiary of such party or by any entity that is contemplated to be a
Subsidiary of such party on and after the Effective Date, provided that Williams
shall not have this obligation with respect to Communications and its
Subsidiaries.
SECTION 6.07 Third Party Beneficiaries. This Agreement is
solely for the benefit of the parties hereto and their respective Subsidiaries
and should not be deemed to confer upon or entitle any third party, including
employees of Williams or Communications any remedy, claim, liability, benefit,
reimbursement, compensation, claim of action or otherwise establish or create
any rights on the part of such third party in excess of those existing without
16
<PAGE> 30
reference to this Agreement. Nothing in this Agreement is intended to restrict
or limit Williams or Communications, as applicable, in the exercise of its
rights or the fulfillment of its duties as a plan sponsor of any Benefit Plans.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed the day and year first written above.
WILLIAMS COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE WILLIAMS COMPANIES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
17
<PAGE> 31
SCHEDULE 2.01(a)(i)
WILLIAMS EMPLOYEE SERVICES
(i) Employee and benefit plan related services of the same type that were
performed by Williams on behalf of the Communications Affiliated Group prior to
the Effective Date, including, but not limited to:
(a) Human Resource Management Services;
(b) Executive Compensation Design and Administration;
(c) Employee Benefit Plan Design and Administration;
(d) Risk Management; and
(e) Training.
(ii) Services related to the foregoing services performed by Williams on behalf
of the Communications Affiliated Group as a result of the Initial Public
Offering, and the ongoing administrative obligations resulting therefrom.
<PAGE> 32
SCHEDULE 2.01(b)(i)
WILLIAMS BENEFIT PLANS
(i) The employee benefit plans as defined in section (3)(3) of ERISA in which
Williams Employees and Communications Employees participated prior to the
Effective Date and any other employee benefit plans as defined in Section (3)(3)
of ERISA created after the Effective Date in which Williams Employees and
Communications Employees participate, including, but not limited to:
The Williams Companies, Inc. Consolidated Pension Plan
The Williams Companies, Inc. Investment Plus Plan
The Williams Companies Supplemental Retirement Plan
The Williams Companies Group Insurance Plan
The Williams Companies Long-Term Disability Plan
The Williams Companies, Inc. Group Medical-Health Plus Plan
The Williams Companies Personal Accident Insurance Plan
The Williams Companies Severance Pay Plan
The Williams Companies Pre-Tax Premium and Flexible Reimbursement Account
Plan
The Williams Companies, Inc. Educational Assistance Plan
The Williams Companies, Inc. Group Medical-Health Plus Plan for Part-Time
Employees
The Williams Companies, Inc. Change-In-Control Severance Protection Plan
The Williams Companies, Inc. Loss of Flight Status Plan
The Williams Companies, Inc. Employee Assistance Plan
The Williams Companies, Inc. Legal Services Plan
The Williams Companies, Inc. Vision Services Plan
(ii) each of the following in which Williams Employees and Communications
Employees participated prior to the Effective Date or which are created after
the Effective Date and cover Williams Employees and Communications Employees:
personnel policy, stock option plan, bonus plan or arrangement, incentive award
plan or arrangement, vacation policy, severance pay plan, policy, program or
agreement, deferred compensation agreement or arrangement, retiree benefit plan
or arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in paragraph (i) of this Schedule.
<PAGE> 33
SCHEDULE 2.01(b)(ii)
COMMUNICATIONS BENEFIT PLANS
(i) The employee benefit plans as defined in section (3)(3) of ERISA, which are
not Williams Benefit Plans, in which Communications Employees, participated
prior to the Effective Date and any other employee benefit plans as defined in
section (3)(3) of ERISA created for Communications Employees after the Effective
Date which are not Williams Benefit Plans, including, but not limited to:
WilTel Communications, LLC Pension Plan
WilTel Communications, LLC Investment Plan
Pension Plan for Bargaining Unit Employees of WilTel Communications, LLC
WilTel Saving and Retirement Plan
WilTel Communications Systems, Inc. Employees 401(k) Savings Plan
Global Access Telecommunications Services 401(k) Plan
ITC 401(k) Savings Plan
Critical Technologies 401(k) Plan
Comlink Incorporated Profit Sharing 401(k) Plan
WilTel Data Network Services, Inc. 401(k) Plan
SoftIron Systems, Inc. 401(k) Plan
WilTel Communications Systems, Inc. Pretax Premium Plan and Flexible
Reimbursement Accounts
WilTel Communications Systems, Inc Group Medical and Dental Assistance Plan
for Full-Time Employees
WilTel Communications Systems, Inc. Group Medical and Dental Assistance
Plan for Part-Time Employees
WilTel Communications Systems, Inc. Group Insurance Plan
WilTel Communications Systems, Inc. Personal Accident Insurance Plan
WilTel Communications Systems, Inc. Long Term Disability Plan
WilTel Communications Systems, Inc. Educational Assistance Plan
WilTel Communications Systems, Inc. Legal Service Plan
WilTel Communications Systems, Inc. Vision Service Plan
WilTel Communications Systems, Inc. Employee Assistance Plan
WilTel Communications Systems, Inc. Severance Pay Plan
WilTel Communications Systems, Inc. Pre-Tax Premium and Flexible
Reimbursement Account Plan (for collectively bargained employees)
WilTel Communications Systems, Inc. Group Medical Health Plus Plan (for
collectively bargained employees)
WilTel Communications Systems, Inc. Group Insurance Plan (for collectively
bargained employees)
WilTel Communications Systems, Inc. Personal Accident Insurance Plan (for
collectively bargained employees)
WilTel Communications Systems, Inc. Long-Term Disability Plan (for
collectively bargained employees)
WilTel Communications Systems, Inc. Educational Assistance Plan (for
collectively bargained employees)
<PAGE> 34
WilTel Communications Systems, Inc. Vision Service Plan (for collectively
bargained employees)
WilTel Communications Systems, Inc. Employee Assistance Plan (for
collectively bargained employees)
WilTel Communications Systems, Inc. Severance Plan (for collectively
bargained employees)
All multi-employer plans maintained or formerly maintained pursuant to any
collective bargaining agreement between any member of the Communications
Affiliated Group and any union
(ii) each of the following, whether created before or after the Effective Date,
that cover Communications Employees who do not participate in the Williams
Benefit Plans, before or after the Effective Date: personnel policy, stock
option plan, bonus plan or arrangement, incentive award plan or arrangement,
vacation policy, severance pay plan, policy, program or agreement, deferred
compensation agreement or arrangement, retiree benefit plan or arrangement,
fringe benefit program or practice (whether or not taxable), employee loan,
consulting agreement, employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding which is not
described in paragraph (i) of this Schedule.
<PAGE> 35
SCHEDULE 2.09
OTHER PLANS
(i) The employee benefit plans as defined in section (3)(3) of ERISA in which
Williams Employees and employees of Communications participated prior to the
Effective Date and any other employee benefit plans as defined in Section (3)(3)
of ERISA created after the Effective Date in which Williams Employees and
Communications Employees participate, including, but not limited to:
The Williams Companies Group Insurance Plan
The Williams Companies Long-Term Disability Plan
The Williams Companies, Inc. Group Medical-Health Plus Plan
The Williams Companies Personal Accident Insurance Plan
The Williams Companies Severance Pay Plan
The Williams Companies Pre-Tax Premium and Flexible Reimbursement Account
Plan
The Williams Companies, Inc. Educational Assistance Plan
The Williams Companies, Inc. Group Medical-Health Plus Plan for Part-Time
Employees
The Williams Companies, Inc. Change-In-Control Severance Protection Plan
The Williams Companies, Inc. Loss of Flight Status Plan
The Williams Companies, Inc. Employee Assistance Plan
The Williams Companies, Inc. Legal Services Plan
The Williams Companies, Inc. Vision Services Plan
(ii) each of the following in which Williams Employees and Communications
Employees participated prior to the Effective Date or which are created after
the Effective Date and cover Williams Employees and Communications Employees:
personnel policy, stock option plan, bonus plan or arrangement, incentive award
plan or arrangement, vacation policy, severance pay plan, policy, program or
agreement, deferred compensation agreement or arrangement, retiree benefit plan
or arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in paragraph (i) of this Schedule.
<PAGE> 1
EXHIBIT 10.52
WILLIAMS COMMUNICATIONS GROUP, INC.
1999 STOCK PLAN
<PAGE> 2
CONTENTS
================================================================================
<TABLE>
<S> <C>
Article 1. Establishment and Objectives 1
Article 2. Definitions 1
Article 3. Administration 5
Article 4. Shares Subject to the Plan and Maximum Awards 6
Article 5. Eligibility and Participation 7
Article 6. Stock Options 7
Article 7. Stock Appreciation Rights 8
Article 8. Deferred Stock 9
Article 9. Dividend Equivalents 10
Article 10. Restricted Stock 11
Article 11. Performance Units, Performance Shares, and Stock-based Cash Awards 12
Article 12. Other Stock-Based Awards 13
Article 13. Form of Payment of Awards 13
Article 14. Performance Measures 14
Article 15. Limitations on Transferability 14
Article 16. Beneficiary Designation 15
Article 17. Deferrals 15
Article 18. Registration and Listing Compliance 15
Article 19. Share Certificates 15
Article 20. Rights of Employees/Directors 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Article 21. Change in Control 16
Article 22. Amendment, Modification, and Termination 17
Article 23. Withholding 17
Article 24. Successors 18
Article 25. General Provisions and Legal Construction 18
</TABLE>
<PAGE> 4
WILLIAMS COMMUNICATIONS GROUP, INC. 1999 STOCK PLAN
ARTICLE 1. ESTABLISHMENT AND OBJECTIVES
1.1. ESTABLISHMENT OF THE PLAN. Williams Communications Group, Inc., a
Delaware corporation (the "Company"), hereby establishes an incentive
compensation plan to be known as the "Williams Communications Group, Inc. 1999
Stock Plan" (the "Plan"), as set forth in this document. The Plan permits the
grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, Performance Shares, Performance Units,
Dividend Equivalents, and Stock-based Cash Awards.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of June 1, 1999 (the "Effective Date").
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through annual and long-term
incentives which are consistent with the Company's goals and which link the
personal interests of Participants to those of the Company's stockholders; to
provide Participants with an incentive for excellence in individual performance;
and to promote teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations of the Exchange Act.
2.2. "AWARD" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Performance
Shares, Performance Units, Dividend Equivalents, Stock-based Cash
Awards, or any other right or interest relating to Shares or cash
granted under the Plan.
2.3. "AWARD AGREEMENT" means any written agreement, contract, notice to
a Participant or other instrument or document between the Company
and the Participant evidencing an Award.
2.4. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules
and Regulations under the Exchange Act.
2.5. "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.6. "CAUSE" means (i) willful failure by the Employee to substantially
perform his duties (as they existed immediately prior to a Change
in Control), other than any such failure
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<PAGE> 5
resulting from a Disability, or (ii) gross negligence or willful
misconduct of the Employee which results in a significantly
adverse effect upon the Company or a Subsidiary, or (iii) willful
violation or disregard of the Code of Business Conduct or other
published policy of the Company by the Employee.
2.7. "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following
conditions shall have been satisfied:
(a) Any Person, other than the Company, The Williams Companies,
Inc. or a Related Party, is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities;
or
(b) Any Person, other than the Company, The Williams Companies,
Inc. or a Related Party, purchases or otherwise acquires,
under a tender offer, securities representing fifty percent
(50%) or more of the combined voting power of the Company's
then outstanding securities; or
(c) During any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period constitute
the Board (and any new Director (other than a Director
whose initial assumption of office is in connection with an
actual or threatened election contest, including, but not
limited to a consent solicitation, relating to the election
of Directors of the Company), whose election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or
whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof;
(d) The stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the
Company or an acquisition by the Company, or consummation
of any such transaction if stockholder approval is not
obtained, other than any such transaction which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting
securities of such surviving entity outstanding immediately
after such transaction if the voting rights of each voting
security relative to the other voting securities were not
altered in such transaction;
(e) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets other than any such transaction which
would result in a Related Party owning or acquiring more
than fifty percent (50%) of the assets owned by the Company
immediately prior to the transaction;
(f) The Board adopts a resolution to the effect that a Change
of Control has occurred; or
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(g) A change of control of The Williams Companies, Inc. occurs,
as determined under The Williams Companies, Inc. 1996 Stock
Plan; provided that as of the date immediately preceding
the effective date of the change of control of The Williams
Companies, Inc., securities of the Company representing
fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities are owned by The
Williams Companies, Inc.
2.8. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.9. "COMMITTEE" means any committee appointed by the Board to
administer Awards to Employees, as specified in Article 3 herein.
Any such committee shall be comprised entirely of Directors.
2.10. "COVERED EMPLOYEE" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the
group of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor statute.
2.11. "DEFERRED STOCK" means a right, granted under Article 8 herein, to
receive Shares at the end of a specified deferral period.
2.12. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who
is employed by the Company or any Subsidiary or Affiliate shall be
considered an Employee under the Plan.
2.13. "DISABILITY" shall have the meaning ascribed to such term in the
Company's governing long-term disability plan, or if no such plan
is applicable to the Participant, at the discretion of the Board.
2.14. "DIVIDEND EQUIVALENT" means a right granted under Article 9
herein, to receive payments equal to dividends paid on a specified
number of Shares.
2.15. "EMPLOYEE" means any employee of the Company or its Subsidiaries
or Affiliates.
2.16. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.17. "FAIR MARKET VALUE" of a Share means, as of any given date, the
closing sales price of a Share reported in the table entitled "New
York Stock Exchange Composite Transactions" contained in The Wall
Street Journal (or an equivalent successor table) for such date
or, if no such closing sales price was reported for such date, for
the most recent trading day prior to such date for which a closing
sales price was reported.
2.18. "FREESTANDING SAR" means an SAR that is granted independently of
any Options, as described in Article 7 herein.
2.19. "GOOD REASON" means the occurrence, within two (2) years following
a Change in Control, of any of the following events, unless the
Participant has consented thereto: (i) a material change in the
Participant's duties from those assigned to the Participant
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<PAGE> 7
immediately prior to a Change in Control, unless associated with a
bona fide promotion of the Participant and a commensurate increase
in the Participant's compensation, in which case the Participant
shall be deemed to consent, or (ii) a significant reduction in the
authority and responsibility assigned to the Participant, or (iii)
the removal of the Participant from, or failure to reelect the
Participant to, any corporate office of the Company or an
Affiliate to which the Participant may have been elected and was
occupying immediately prior to a Change in Control, unless
associated with a bona fide promotion of the Participant and a
commensurate increase in the Participant's compensation or in
connection with the election of the Participant to a corresponding
or higher office of the Company or an Affiliate, in each which
case the Participant shall be deemed to consent, or (iv) reduction
of a Participant's Base Salary, or (v) termination of any of the
incentive compensation plans in which the Participant shall be
participating at the time of a Change in Control, unless such plan
is replaced by a successor plan providing incentive opportunities
and awards at least as favorable to the Participant as those
provided in the plan being terminated, or (vi) amendment of any of
the incentive compensation plans in which the Participant shall be
participating at the time of a Change in Control so as to provide
for incentive opportunities and awards less favorable to the
Participant than those provided in the plan being amended, or
(vii) failure by the Company or an Affiliate to continue the
Participant as a participant in any of the incentive compensation
plans in which the Participant is participating immediately prior
to a Change in Control on a basis comparable to the basis on which
other similarly situated employees participate in such plan, or
(viii) except in relation to a wage freeze applicable to all
employees of the Company or an Affiliate, modification of the
administration of any of the incentive compensation plans so as to
adversely affect the level of incentive opportunities or awards
actually received by the Participant, or (ix) a requirement by the
Company or an Affiliate that the Participant's principal duties be
performed at a location more than fifty (50) miles from the
location where the Participant was employed immediately preceding
the Change in Control, except for travel reasonably required in
the performance of the Participant's duties.
2.20. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase
Shares granted under Article 6 herein and which is designated as
an Incentive Stock Option and which is intended to meet the
requirements of Code Section 422.
2.21. "INSIDER" shall mean an individual who is, on the relevant date,
an officer, director or a beneficial owner of more than ten
percent (10%) of any class of the Company's equity securities that
is registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
2.22. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.23. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.24. "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
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<PAGE> 8
2.25. "PARTICIPANT" means an Employee, a Director, or a member of the
board of directors of The Williams Companies, Inc. who has been
selected to receive an Award or who has outstanding an Award
granted under the Plan.
2.26. "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section
162(m).
2.27. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 11 herein.
2.28. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 11 herein.
2.29. "PERIOD OF RESTRICTION" means the period during which (i) the
transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the
Board, at its discretion), and (ii) the Shares are subject to a
substantial risk of forfeiture, as provided in Article 10 herein.
2.30. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.31. "RELATED PARTY" means: (i) a Subsidiary; (ii) an employee or group
of employees of the Company or any Subsidiary; or (iii) a trustee
or other fiduciary holding securities under an employee benefit
plan of the Company or any Subsidiary; or (iv) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of securities
of the Company which carry the right to vote generally in the
election of Directors.
2.32. "RESTRICTED STOCK" means an Award granted to a Participant
pursuant to Article 10 herein.
2.33. "RETIREMENT" shall have the meaning ascribed to such term in the
Company's governing tax-qualified retirement plan applicable to
the Participant, or if no such plan is applicable to the
Participant, at the discretion of the Board.
2.34. "SHARES" means the shares of common stock of the Company.
2.35. "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone
or in connection with a related Option, designated as an SAR,
pursuant to the terms of Article 7 herein.
2.36. "STOCK-BASED CASH AWARD" means an Award granted to a Participant,
as described in Article 11 herein.
2.37. "SUBSIDIARY" means any corporation, partnership, joint venture, or
other entity in which the Company has a majority voting interest.
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<PAGE> 9
2.38. "TANDEM SAR" means an SAR that is granted in connection with a
related Option pursuant to Article 7 herein, the exercise of which
shall require forfeiture of the right to purchase a Share under
the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall similarly be canceled).
ARTICLE 3. ADMINISTRATION
3.1. GENERAL. The Plan shall be administered by the Board, or (subject to
the following) by any Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors. The Board may delegate to the Committee
any or all of the administration of the Plan; provided, however, that the
administration of the Plan with respect to Awards granted to Directors may not
be so delegated. To the extent that the Board has delegated to the Committee any
authority and responsibility under the Plan, all applicable references to the
Board in the Plan shall be to the Committee. The Committee shall have the
authority to delegate administrative duties to officers or Directors of the
Company.
3.2. AUTHORITY OF THE BOARD. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Board shall have full power to select Employees and
Directors who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent with
the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 22
herein) amend the terms and conditions of any outstanding Award as provided in
the Plan. Further, the Board shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law
(and subject to Section 3.1 herein), the Board may delegate its authority as
identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the Board
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Company, its stockholders, Directors, Employees, Participants, and their estates
and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be thirty-six million
(36,000,000), no more than twelve million (12,000,000) of which may be granted
in the form of Restricted Shares. For purposes of this Section 4.1, the number
of Shares to which an Award relates shall be counted against the number of
Shares reserved and available under the Plan at the time of grant of the Award,
unless such number of Shares cannot be determined at that time in which case the
number of Shares actually distributed pursuant to the Award shall be counted
against the number of Shares reserved and available under the Plan at the time
of distribution; provided, however, that Awards related to or retroactively
added to, or granted in tandem with, substituted for or converted into, other
Awards shall be counted or not counted against the number of Shares reserved and
available under the Plan in accordance with procedures adopted by the Board so
as to ensure appropriate counting but to avoid double counting; and, provided
further, that the number of Shares deemed to be issued under the Plan upon
exercise or settlement of an Award shall be reduced by the number of Shares
surrendered by the Participant or withheld by the Company in payment of the
exercise price of the Award and withholding taxes relating to the Award.
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<PAGE> 10
If any Shares to which an Award relates are forfeited, or payment is made
to the Participant in the form of cash or other property other than Shares, or
the Award otherwise terminates without payment being made to the Participant in
the form of Shares, any Shares counted against the number of Shares reserved and
available under the Plan with respect to such Award shall, to the extent of any
such forfeiture, alternative payment or termination, again be available for
Awards under the Plan. Any Shares distributed pursuant to an Award may consist,
in whole or in part, of authorized and unissued Shares, or of treasury Shares,
including Shares repurchased by the Company for purposes of the Plan.
Unless and until the Board determines that an Award to a Covered Employee
shall not be designed to comply with the Performance-Based Exception, the
following rules shall apply to grants of such Awards under the Plan:
(a) STOCK OPTIONS: The maximum aggregate number of Shares that
may be granted in the form of Stock Options, pursuant to
any Award granted in any one fiscal year to any one single
Participant shall be five hundred thousand (500,000).
(b) SARS: The maximum aggregate number of Shares that may be
granted in the form of Stock Appreciation Rights, pursuant
to any Award granted in any one fiscal year to any one
single Participant shall be five hundred thousand
(500,000).
(c) PERFORMANCE SHARES/PERFORMANCE UNITS AND STOCK-BASED CASH
AWARDS: The maximum aggregate payout (determined as of the
end of the applicable performance period) with respect to
Stock-based Cash Awards or Awards of Performance Shares or
Performance Units granted in any one fiscal year to any one
Participant shall be equal to the value of two hundred
thousand (200,000) Shares.
4.2. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
subsections 4.1(a), 4.1(b), and 4.1(c), as may be determined to be appropriate
and equitable by the Board, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees and Directors.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Board may, from time to time, select from all eligible Employees and Directors,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award.
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ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Board.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Board shall determine. The Award Agreement also shall specify whether the Option
is intended to be an ISO within the meaning of Code Section 422, or an NQSO
whose grant is intended not to fall under the provisions of Code Section 422.
6.3. OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted; provided, however, that the
Option Price for Options granted in connection with the consummation of an
initial public offering shall be equal to the initial public offering price.
6.4. DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Board shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6. TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each Participant's Option
Award Agreement shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Board. The Board may grant Freestanding SARs, Tandem SARs, or
any combination of these forms of SARs.
The Board shall have complete discretion in determining the number of SARs
granted to each Participant (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and conditions pertaining
to such SARs.
The grant price of a Freestanding SAR shall be at least equal to the Fair
Market Value of a Share on the date of grant of the SAR. The grant price of
Tandem SARs shall equal the Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the
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<PAGE> 12
related Option. A Tandem SAR may be exercised only with respect to the Shares
for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised
upon whatever terms and conditions the Board, in its sole discretion, imposes
upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Board shall determine.
7.5. TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Board, in its sole discretion; provided, however, that such
term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise and the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Board, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof. The Board's
determination regarding the form of SAR payout shall be set forth in the Award
Agreement pertaining to the grant of the SAR.
7.7. TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each SAR Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the SAR following termination of the Participant's employment or
directorship with the Company. Such provisions shall be determined in the sole
discretion of the Board, shall be included in the Award Agreement entered into
with Participants, need not be uniform among all SARs issued pursuant to the
Plan, and may reflect distinctions based on the reasons for termination.
ARTICLE 8. DEFERRED STOCK
8.1. GRANT OF DEFERRED STOCK. Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Shares of Deferred
Stock to Participants in such amounts as the Board shall determine.
8.2. DEFERRED STOCK AGREEMENT. Each Deferred Stock grant shall be
evidenced by a Deferred Stock Award Agreement that shall specify the Period(s)
of Deferral, the number of Shares of Deferred Stock granted, and such other
provisions as the Board shall determine.
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8.3. OTHER RESTRICTIONS. The Board shall impose such other conditions
and/or restrictions on any Shares of Deferred Stock granted pursuant to the Plan
as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Deferred Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), time-based restrictions on
vesting following the attainment of the performance goals, and/or restrictions
under applicable federal or state securities laws.
Except as otherwise provided in this Article 8, Shares of Deferred Stock
covered by each Deferred Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Deferral.
8.4. VOTING RIGHTS. Participants holding Shares of Deferred Stock granted
hereunder shall have no voting rights with respect to those Shares during the
Period of Deferral.
8.5. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Deferral,
Participants holding Shares of Deferred Stock granted hereunder shall have no
rights to receive regular cash dividends paid with respect to the underlying
Shares, unless and only to the extent that the Board shall award Dividend
Equivalents with respect to such Deferred Stock. If the grant or vesting of
Deferred Stock granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Board may apply any
restrictions it deems appropriate to the payment of Dividend Equivalents with
respect to such Deferred Stock, such that the Dividend Equivalents and/or the
Deferred Stock maintain eligibility for the Performance-Based Exception.
8.6. TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each Deferred Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive Deferred Stock following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares of
Deferred Stock issued pursuant to the Plan, and may reflect distinctions based
on the reasons for termination.
ARTICLE 9. DIVIDEND EQUIVALENTS
Subject to the terms and provisions of the Plan, the Board, at any time
and from time to time, may grant Dividend Equivalents to Participants in such
amounts as the Board shall determine. Dividend Equivalents shall confer upon the
Participant rights to receive payments equal to interest or dividends, when and
if paid, with respect to a number of Shares determined by the Board. The Board
may provide that Dividend Equivalents shall be paid or distributed when accrued
or shall be deemed to have been reinvested in additional Shares or additional
Awards or otherwise reinvested.
ARTICLE 10. RESTRICTED STOCK
10.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Board, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Board shall determine.
10.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Board shall determine.
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<PAGE> 14
10.3. OTHER RESTRICTIONS. The Board shall impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to the
Plan as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), time-based restrictions on
vesting following the attainment of the performance goals, and/or restrictions
under applicable federal or state securities laws.
The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 10, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the applicable
Period of Restriction.
10.4. VOTING RIGHTS. Participants holding Shares of Restricted Stock
granted hereunder may be granted the right to exercise full voting rights with
respect to those Shares during the Period of Restriction.
10.5. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Board may apply any restrictions to the dividends
that the Board deems appropriate. Without limiting the generality of the
preceding sentence, if the grant or vesting of Restricted Shares granted to a
Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Board may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
10.6. TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive Restricted Shares following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan, and may reflect distinctions based
on the reasons for termination.
ARTICLE 11. PERFORMANCE UNITS, PERFORMANCE SHARES, AND STOCK-BASED CASH AWARDS
11.1. GRANT OF PERFORMANCE UNITS/SHARES AND STOCK-BASED CASH AWARDS.
Subject to the terms of the Plan, Performance Units, Performance Shares, and/or
Stock-based Cash Awards may be granted to Participants in such amounts and upon
such terms, and at any time and from time to time, as shall be determined by the
Board.
11.2. VALUE OF PERFORMANCE UNITS/SHARES AND STOCK-BASED CASH AWARDS. Each
Performance Unit shall have an initial value that is established by the Board at
the time of grant. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. Each Stock-based Cash
Award shall have a value as may be determined by the Board. The Board shall set
performance goals in its discretion which, depending on the extent to which they
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are met, will determine the number and/or value of Performance Units/Shares and
Stock-based Cash Awards that will be paid out to the Participant. For purposes
of this Article 11, the time period during which the performance goals must be
met shall be called a "Performance Period."
11.3. EARNING OF PERFORMANCE UNITS/SHARES AND STOCK-BASED CASH AWARDS.
Subject to the terms of this Plan, after the applicable Performance Period has
ended, the holder of Performance Units/Shares and Stock-based Cash Awards shall
be entitled to receive payout on the number and value of Performance
Units/Shares and Stock-based Cash Awards earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
11.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES AND
STOCK-BASED CASH AWARDS. Payment of earned Performance Units/Shares and
Stock-based Cash Awards shall be made following the close of the applicable
Performance Period. Subject to the terms of this Plan, the Board, in its sole
discretion, may pay earned Performance Units/Shares and Stock-based Cash Awards
in the form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares and Stock-based Cash Awards at the close of the applicable
Performance Period. Such Shares may be granted subject to any restrictions
deemed appropriate by the Board. The determination of the Board with respect to
the form of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.
11.5. TERMINATION OF EMPLOYMENT/DIRECTORSHIP DUE TO DEATH, DISABILITY, OR
RETIREMENT. Unless determined otherwise by the Board and set forth in the
Participant's Award Agreement, in the event the employment or directorship of a
Participant is terminated by reason of death, Disability, or Retirement during a
Performance Period, the Participant shall receive a payout of the Performance
Units/Shares or Stock-based Cash Awards which is prorated, as specified by the
Board in its discretion.
Payment of earned Performance Units/Shares or Stock-based Cash Awards
shall be made at a time specified by the Board in its sole discretion and set
forth in the Participant's Award Agreement.
11.6. TERMINATION OF EMPLOYMENT/DIRECTORSHIP FOR OTHER REASONS. In the
event that a Participant's employment or directorship terminates for any reason
other than those reasons set forth in Section 11.5 herein, all Performance
Units/Shares and Stock-based Cash Awards shall be forfeited by the Participant
to the Company unless determined otherwise by the Board, as set forth in the
Participant's Award Agreement.
ARTICLE 12. OTHER STOCK-BASED AWARDS
The Board is authorized, subject to limitations under applicable law, to
grant such other Awards that are denominated or payable in, valued in whole or
in part by reference to, or otherwise based on, or related to, Shares, as deemed
by the Board to be consistent with the purposes of the Plan including, without
limitation, Shares awarded which are not subject to any restrictions or
conditions, convertible or exchangeable debt securities or other rights
convertible or exchangeable into Shares, Awards valued by reference to the value
of securities of or the performance of the Company or specified Affiliates, and
Awards payable in the securities of the Company or Affiliates. Except as may be
provided elsewhere herein, Shares granted under this Article 12 shall be
purchased for such consideration, paid for by such methods and in such forms,
including, without limitation, cash,
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Shares, outstanding Awards or other property, as the Board shall determine,
provided, however, that the value of such consideration shall not be less per
share than the Fair Market Value of a Share on the date of grant of such
purchase right and in no event shall be less per share than the par value of a
Share.
ARTICLE 13. FORM OF PAYMENT OF AWARDS
Subject to the terms of the Plan and any applicable Award Agreement,
payments or substitutions for payments upon the grant or exercise of any Award
may be made in such forms as the Board shall determine, including, without
limitation, cash, Deferred Stock, Shares, other Awards of other property, and
may be made in a single payment or substitution in installments or on a deferred
basis, in each case in accordance with rules and procedures established by the
Board. Such rules and procedures may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or deferred
payments on the grant or crediting of Dividend Equivalents in respect of
installment or deferred payments denominated in Shares. The Board may also
permit or require the deferral of any award payment, subject to rules and
procedures as may be established, which may include provisions for the payment
or crediting of interest, or Dividend Equivalents, including converting such
credits into deferred Share equivalents.
ARTICLE 14. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 14, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees which are designed to
qualify for the Performance-Based Exception, the performance measure(s) to be
used for purposes of such grants shall be chosen from among the following:
(a) Annual net income to common stock;
(b) Operating profit;
(c) Annual return on capital or equity;
(d) Annual earnings per share;
(e) Annual cash flow provided by operations;
(f) Changes in annual revenues; and/or
(g) Strategic business criteria, consisting of one or more objectives
based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to
acquisitions or divestitures.
The Board shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals; provided, however,
that Awards which are designed to qualify for the Performance-Based Exception,
and which are held by a Covered Employee, may not be adjusted upward (the Board
shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Board discretion to alter the governing performance measures without obtaining
shareholder approval of such changes, the
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Board shall have sole discretion to make such changes without obtaining
shareholder approval. In addition, in the event that the Board determines that
it is advisable to grant Awards which shall not qualify for the
Performance-Based Exception, the Board may make such grants without satisfying
the requirements of Code Section 162(m).
ARTICLE 15. LIMITATIONS ON TRANSFERABILITY
Awards and other rights under the Plan shall not be transferable by a
Participant except by will or the laws of descent and distribution (or, in the
event of the Participant's death, to a designated beneficiary), and, if
exercisable, shall be exercisable during the lifetime of a Participant only by
such Participant or such Participant's guardian or legal representative;
provided, however, that except as otherwise provided by the Board, Awards and
other rights may be transferred to one or more Persons during the lifetime of
the Participant in connection with the Participant's estate planning, and may be
exercised by such transferees in accordance with the terms of such Award
consistent with the registration of the offer and sale of Shares on Form S-8 or
Form S-3 or such other registration form of the Securities and Exchange
Commission as may then be filed and effective with respect to the Plan, and
permitted by the Board. Awards and other rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered to or in favor of any
Person other than the Company or an Affiliate, and shall not be subject to any
lien, obligation or liability of a Participant or transferee to any Person other
than the Company or any Affiliate.
ARTICLE 16. BENEFICIARY DESIGNATION
If so determined by the Board, a Participant may, in the manner
established by the Board, designate a beneficiary or beneficiaries to exercise
the rights of the Participant, and to receive any distribution with respect to
any Award upon the death of the Participant. Each designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate. A transferee, beneficiary, guardian, legal
representative or other Person claiming any rights under the Plan from or
through any Participant shall be subject to all the terms and conditions of the
Plan and any Award Agreement applicable to such Participant, except to the
extent the Plan and Award Agreement otherwise provide with respect to such
Persons, and to any additional restrictions or limitations deemed necessary or
appropriate by the Board.
ARTICLE 17. DEFERRALS
The Board may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option or SAR, the lapse
or waiver of restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance Units/Shares. If any
such deferral election is required or permitted, the Board shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 18. REGISTRATION AND LISTING COMPLIANCE
The Company shall not be obligated to issue or deliver Shares in
connection with any Award or take any other action under the Plan in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other federal or state securities law, any requirement
under any listing agreement between the Company and any national securities
exchange or
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automated quotation system, or any other law, regulation, or contractual
obligation of the Company, until the Company is satisfied that such laws,
regulations and any other obligations have been satisfied.
ARTICLE 19. SHARE CERTIFICATES
All certificates for Shares delivered under the terms of the Plan shall
be subject to such stop-transfer orders and other restrictions as the Board may
deem advisable under federal or state securities laws, rules and regulations
thereunder, and the rules of any national securities exchange or automated
quotation system on which the Shares are listed or quoted. The Board may cause a
legend to be placed on any such certificates to make appropriate reference to
such restrictions or limitations that may be applicable to the Shares. In
addition, during any period in which Awards or Shares are subject to
restrictions or limitations under the Plan or any Award Agreement, or during any
period during which delivery or receipt of an Award or Shares has been deferred
by the Board or a Participant, the Board may require the Participant to enter
into an agreement providing that certificates representing Shares issuable or
issued pursuant to an Award shall remain in the physical custody of the Company
or such person as the Board may designate.
ARTICLE 20. RIGHTS OF EMPLOYEES/DIRECTORS
20.1. NO RIGHT TO EMPLOYMENT. Nothing contained in the Plan shall confer,
and no grant of an Award shall be construed as conferring, upon any Participant
any right to continue in the employ of the Company or any Affiliate or to
interfere in any way with the right of the Company or any Affiliate to terminate
a Participant's employment at any time or increase or decrease a Participant's
compensation from the rate in existence at the time of granting of an Award.
20.2. PARTICIPATION. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 21. CHANGE IN CONTROL
21.1. TREATMENT OF OUTSTANDING AWARDS. If, within two (2) years following
a Change in Control, a Participant's employment with the Company and its
Affiliates is terminated voluntarily for Good Reason (excluding any transfer to
the Company or its Affiliates), or involuntarily (other than due to Cause,
death, Disability or Retirement):
(a) Any and all Options and SARs granted hereunder shall become
immediately vested and exercisable;
(b) Any restriction periods and restrictions imposed on
Restricted Shares which are not performance-based shall
lapse; and
(c) The target payout opportunities attainable under all
outstanding Awards of performance-based Restricted Stock,
Deferred Stock, Performance Units, Performance Shares, and
Stock-based Cash Awards shall be deemed to have been fully
earned for the entire Performance Period(s) as of the
effective date of termination. The vesting of all Awards
denominated in Shares shall be accelerated as of the
effective date of termination, and there shall be paid out
to Participants within thirty (30) days following the
effective date of termination a pro rata number of shares
based upon an assumed achievement of all relevant targeted
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performance goals and upon the length of time within the
Performance Period which has elapsed prior to termination.
Awards denominated in cash shall be paid pro rata to
participants in cash within thirty (30) days following the
effective date of termination, with the proration
determined as a function of the length of time within the
Performance Period which has elapsed prior to termination,
and based on an assumed achievement of all relevant
targeted performance goals.
21.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE IN CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan (but subject to the
limitations of Section 22.3 hereof) or any Award Agreement provision, the
provisions of this Article 21 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant with
respect to said Participant's outstanding Awards; provided, however, the Board
may terminate, amend, or modify this Article 21 at any time and from time to
time prior to the date of a Change in Control.
21.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Board may take any action necessary to preserve the use of pooling of interests
accounting.
ARTICLE 22. AMENDMENT, MODIFICATION, AND TERMINATION
22.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may amend,
alter, suspend, discontinue or terminate the Plan without the consent of
stockholders or Participants, except that any amendment or alteration shall be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which the Stock may be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such amendments or
alterations to stockholders for approval; provided, however, that, without the
consent of a Participant, no amendment, alteration, suspension, discontinuation
or termination of the Plan may materially and adversely affect the rights of
such Participant under any Award previously granted to him.
Unless earlier terminated by the Board, the Plan will terminate when no
Shares remain reserved and available for issuance and the Company has no further
obligation with respect to any Award granted under the Plan.
22.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Board may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that, unless the Board determines
otherwise at the time such adjustment is considered, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
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22.3. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary (but subject to Section 21.3 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
22.4. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made to
Code Section 162(m) to permit greater flexibility with respect to any Award or
Awards available under the Plan, the Board may, subject to this Article 22, make
any adjustments it deems appropriate.
ARTICLE 23. WITHHOLDING
23.1. TAX WITHHOLDING. The Company and its affiliates shall have the power
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes,
domestic or foreign, required by law or regulation to be withheld with respect
to any taxable event arising as a result of this Plan.
23.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Board, in its sole discretion, deems appropriate.
ARTICLE 24. SUCCESSORS
All obligations of the Company and its affiliates under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
ARTICLE 25. GENERAL PROVISIONS AND LEGAL CONSTRUCTION
25.1. UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded " plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
25.2. NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Board shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
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25.3. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
25.4. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
25.5. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
25.6. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Board fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Board.
25.7. GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
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EXHIBIT 10.55
WILLIAMS COMMUNICATIONS GROUP, INC.
CHANGE IN CONTROL SEVERANCE PROTECTION PLAN
(Effective June 1, 1999)
Introduction
The Board of Directors of Williams Communications Group, Inc.
recognizes that, as is the case with many publicly held companies, there always
exists the possibility of a change in control of the Company. This possibility
and the uncertainty it creates may result in the loss or distraction of
employees of the Company and its subsidiaries to the detriment of the Company
and its stockholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Company and its
stockholders. The Board also believes that when a change in control is perceived
as imminent, or is occurring, the Board should be able to receive and rely on
disinterested service from employees regarding the best interests of the Company
and its stockholders without concern that employees might be distracted or
concerned by the personal uncertainties and risks created by a change in
control.
Accordingly, the Board determined that appropriate steps should be
taken to assure the Company of the continued employment and attention and
dedication to duty of its employees and to ensure the availability of their
continued service, notwithstanding the possibility, threat or occurrence of a
change in control.
In order to fulfill the above purposes, and recognizing that employees
shall be entitled to rely on the various benefits, the Board hereby adopts the
Williams Communications Group, Inc. Change in Control Severance Protection Plan,
effective June 1, 1999.
SECTION 1. ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Williams Communications Group, Inc. Change in
Control Severance Protection Plan as set forth in this document.
SECTION 2. DEFINITIONS
2.01 Definitions. In addition to the terms defined elsewhere herein, as
used herein, the following words and phrases when used with initial capital
letters shall have the following respective meanings.
2.01.1 "Act" means the Securities and Exchange Act of 1934, as
amended.
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2.01.2 "Base Salary" means the amount a Participant is
entitled to receive as wages or salary on an annualized basis,
excluding all bonus, overtime and incentive compensation, payable by
the Company as consideration for the Participant's services, as
determined on the date immediately preceding termination of employment,
except that in the case of a termination of employment for Good Reason,
Base Salary shall be determined as of the date immediately before the
event which constitutes Good Reason.
2.01.3 "Board" means the Board of Directors of Williams
Communications Group, Inc.
2.01.4 "Change in Control" means and will be deemed to have
occurred if: (i) any Person, other than the Company or a Related Party,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the total voting power of
all the then outstanding Voting Securities; or (ii) a Person, other
than the Company or a Related Party, purchases or otherwise acquires,
under a tender offer, securities representing fifteen percent (15%) or
more of the total voting power of all the then outstanding Voting
Securities; or (iii) the individuals (a) who as of the effective date
of the Plan constitute the Board or (b) who thereafter are elected to
the Board and whose election, or nomination for election, to the Board
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors as of the effective date
of the Plan or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof; or
(iv) the stockholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company or an acquisition by
the Company, or consummation of any such transaction if stockholder
approval is not obtained, other than any such transaction which would
result in the Voting Securities outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
sixty-five percent (65%) of the total voting power represented by the
Voting Securities of such surviving entity outstanding immediately
after such transaction if the voting rights of each Voting Security
relative to the other Voting Securities were not altered in such
transaction; or (v) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets other than any such transaction which would result in a Related
Party owning or acquiring more than fifty percent (50%) of the assets
owned by the Company immediately prior to the transaction; (vi) the
Board adopts a resolution to the effect that a Change of Control has
occurred; or (vii) a change of control of The Williams Companies, Inc.
occurs, as determined under The Williams Companies, Inc. 1996 Stock
Plan; provided that as of the date immediately preceding the effective
date of the change of control of The Williams Companies, Inc.,
securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company's then outstanding securities
are owned by The Williams Companies, Inc.
2.01.5 "Code" means the Internal Revenue Code of 1986, as
amended.
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2.01.6 "Code of Business Conduct" means the Company's Code of
Business Conduct, as amended from time to time by the Board prior to a
Change in Control.
2.01.7 "Committee" means the committee appointed by the Board
to administer this Plan.
2.01.8 "Company" means Williams Communications Group, Inc. and
any successor thereto.
2.01.9 "Disability" means a physical or mental incapacity of a
Participant which substantially prevents the Participant, after
reasonable accommodation, from performing the essential functions of
his duties as they existed immediately prior to a Change in Control on
a full-time basis for a period of six (6) calendar months out of any
twelve (12) consecutive calendar month period and which could
reasonably be expected to continue for a period of at least eighteen
(18) months following such twelve (12) month period.
2.01.10 "Effective Date" means the date, specified on the
signature page, that this Plan is to be effective.
2.01.11 "Eligible Employees" means those Employees who
constitute a select group of management or highly compensated
employees, and who are designated in writing as such by the Company for
purposes of this Plan.
2.01.12 "Employee" means an exempt, salaried full-time regular
employee of the Company, but excluding:
(i) any Employee who is represented by a collective
bargaining representative for purposes of collective
bargaining, unless an effective collective bargaining
agreement between the Company and such representative
expressly requires that persons covered by such agreement
participate in this Plan;
(ii) any Employee of the Company who has been
notified that he or she is covered by a change in control
protection plan or program which offers benefits which are
equal to or greater than the benefits provided by this Plan;
or
(iii) a member of any group of similarly situated
employees identified by the Company as being excluded from
coverage under the Plan.
2.01.13 "Employer" means the Company or a Subsidiary which has
adopted the Plan pursuant to Section 9 hereof.
2.01.14 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
2.01.15 "Good Reason" shall have the meaning set forth in
Section 4.02.1.2 of this Plan.
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2.01.16 "Incentive Plan" means any of the Company's stock
option, bonus, sales incentive, and other incentive plans in existence
now or immediately prior to a Change in Control or any additional or
successor plans providing substantially equivalent or better incentive
opportunities.
2.01.17 "Participant" means an Employee who meets the
eligibility requirements of subsection 3.01 hereof.
2.01.18 "Person" shall have the meaning assigned in the Act.
2.01.19 "Plan" means the Williams Communications Group, Inc.
Change in Control Severance Protection Plan.
2.01.20 "Related Party" means (i) a Subsidiary, or (ii) an
employee or group of employees of the Company or any Subsidiary, or
(iii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary, or (iv) a corporation
owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the
Company.
2.01.21 "Retirement" shall have the meaning ascribed to such
term in the Company's governing tax-qualified retirement plan
applicable to the Participant, or if no such plan is applicable to the
Participant, at the discretion of the Board.
2.01.22 "Severance Benefit" means the amounts payable and
benefits continued in accordance with subsection 4.03 hereof.
2.01.23 "Subsidiary" means any corporation, partnership or
joint venture in which the Company, directly or indirectly, holds a
majority of the voting power of such corporation's outstanding shares
of capital stock or a majority of the capital or profits interests of
such partnership or joint venture.
2.01.24 "Voting Securities" means any securities of the
Company which carry the right to vote generally in the election of
directors.
2.01.25 "Years of Service" means the number of years of
continuous employment by an Employee with the Company or any of its
Subsidiaries rounded up to the nearest whole year.
SECTION 3. ELIGIBILITY
3.01 Participation. Each Employee shall be entitled to be a Participant
if he is an Eligible Employee at the time a Change in Control occurs.
3.02 Duration of Participation. A Participant shall cease to be a
Participant when he ceases to be an Employee or an Eligible Employee, unless
such Participant is then entitled to payment of
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a Severance Benefit. A Participant entitled to payment of a Severance Benefit
shall remain a Participant until the full amount of the Severance Benefit has
been paid to the Participant.
SECTION 4. SEVERANCE BENEFIT
4.01 Right to Severance Benefit. A Participant shall be entitled to
receive a Severance Benefit from the Company if a Change in Control has occurred
and if, within two (2) years thereafter, the Participant's employment by the
Company shall terminate for any reason specified in paragraph 4.02.1 hereof,
whether the termination is voluntary or involuntary.
4.02 Termination of Employment.
4.02.1 Terminations Which Give Rise to a Severance Benefit
Under This Plan.
4.02.1.1 Except as set forth in paragraph 4.02.2
hereof, any termination of employment of a Participant with
the Company by action of the Company within two (2) years
following a Change in Control (excluding any transfer to a
Subsidiary) shall entitle the Participant to a Severance
Benefit.
4.02.1.2 Any termination of employment of a
Participant with the Company by the Participant for Good
Reason shall entitle the Participant to a Severance Benefit.
For purposes of this Plan, "Good Reason" means the occurrence,
within two (2) years following a Change in Control, of any of
the following events, unless the Participant has consented
thereto: (i) a material change in the Participant's duties
from those assigned to the Participant immediately prior to a
Change in Control, unless associated with a bona fide
promotion of the Participant and a commensurate increase in
the Participant's compensation, in which case the Participant
shall be deemed to consent, or (ii) a significant reduction in
the authority and responsibility assigned to the Participant,
or (iii) the removal of the Participant from, or failure to
reelect the Participant to, any corporate office of the
Company or an Affiliate to which the Participant may have been
elected and was occupying immediately prior to a Change in
Control, unless associated with a bona fide promotion of the
Participant and a commensurate increase in the Participant's
compensation or in connection with the election of the
Participant to a corresponding or higher office of the Company
or an Affiliate, in each which case the Participant shall be
deemed to consent, or (iv) reduction of a Participant's Base
Salary, or (v) termination of any of the Incentive Plans in
which the Participant shall be participating at the time of a
Change in Control, unless such plan is replaced by a successor
plan providing incentive opportunities and awards at least as
favorable to the Participant as those provided in the plan
being terminated, or (vi) amendment of any of the Incentive
Plans so as to provide for incentive opportunities and awards
less favorable to the Participant than those provided in the
plan being amended, or (vii) failure by the Company or an
Affiliate to continue the Participant as a participant in any
of the Incentive Plans in which the Participant is
participating immediately prior to a Change in Control on a
basis comparable to the basis on which other similarly
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situated Eligible Employees participate in such plan, or
(viii) except in relation to a wage freeze applicable to all
employees of the Company or an Affiliate, modification of the
administration of any of the Incentive Plans so as to
adversely affect the level of incentive opportunities or
awards actually received by the Participant, or (ix) a
requirement by the Company or an Affiliate that the
Participant's principal duties be performed at a location more
than fifty (50) miles from the location where the Participant
was employed immediately preceding the Change in Control,
except for travel reasonably required in the performance of
the Participant's duties.
4.02.2 Terminations Which Do Not Give Rise to a Severance
Benefit Under This Plan. If an Employee's employment with the Company
is terminated after a Change in Control due to cause (as defined
below), Disability, death, Retirement, or the sale of a business (as
defined below), the Employee shall not be entitled to a Severance
Benefit, regardless of the occurrence of a Change in Control.
4.02.2.1 A termination for cause shall have occurred
when an Employee is terminated for (i) willful failure by the
Employee substantially to perform his duties (as they existed
immediately prior to such Change in Control), other than any
such failure resulting from a Disability, or (ii) gross
negligence or willful misconduct of the Employee which results
in a significantly adverse effect upon the Company or a
Subsidiary, or (iii) willful violation or disregard of the
Code of Business Conduct or other published policy of the
Company by the Employee.
4.02.2.2 A termination due to the sale of a business
shall have occurred within two (2) years of a Change in
Control where the Company or the Employee's Employer has sold
or otherwise disposed of a Subsidiary, branch or other
business unit (or all or substantially all of the assets
thereof) in which the Employee was employed before such sale
or disposition to any Person, other than the Company or a
Related Party (except an employee or group of employees of the
Company or a Subsidiary), and the Employee has been offered
employment with the acquirer of such Subsidiary, branch or
unit on substantially the same terms and conditions under
which he worked for the Company. Such terms and conditions
shall include an agreement or plan binding on such acquirer,
providing that upon any termination of employment with the
acquirer of the sort described in paragraph 4.02.1 hereof
within two (2) years of such sale or disposition, the acquirer
shall pay to each such former Employee an amount equal to the
Severance Benefit that such former Employee would have
received under this Plan had he been a Participant at the time
of such termination. For purposes of this subparagraph, the
acquirer's agreement or plan must treat service with the
Company, its Subsidiaries and/or the acquirer as continuous
service for purposes of calculating any Severance Benefit.
4.03 Severance Benefit.
4.03.1 If a Participant's employment is terminated under
circumstances described in subparagraph 4.02.1 hereof, the Company
shall pay such Participant,
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<PAGE> 7
without the necessity of a claim being made under subsection
7.08, within ten (10) business days of the date such
termination takes effect, an amount equal to the sum of the
Participant's Base Salary plus the lesser of (i) the product
of one-twelfth (1/12) of the Participant's Base Salary
multiplied by the Participant's Years of Service or (ii) the
Participant's Base Salary; provided that in no event will a
benefit be payable under this subsection 4.03 unless the
Participant properly and timely executes a standard waiver and
release of claims agreement (the terms and conditions of which
shall be determined by the Company in its sole discretion).
4.03.2 A Participant who receives a payment under
subparagraph 4.03.1 shall receive an additional cash payment
equal to the maximum amount that, but for his termination,
would have been payable to the Participant under the Company's
annual bonus plan, assuming that all performance targets were
met or exceeded, but prorated based on the portion of the
calendar year prior to the Participant's termination of
employment. This payment shall be made within ten (10)
business days of the date the Participant terminates
employment without the necessity of a claim being made under
subsection 7.08.
4.03.3 If a Participant receives a payment under
subparagraph 4.03.1, the Company shall continue for a period
of twelve months after the Participant's termination of
employment to provide medical benefits to the Participant
and/or the Participant's eligible dependents at least equal to
that which would have been provided in accordance with the
Company's plans and policies in effect immediately prior to
the Change in Control if the Participant's employment had not
been terminated. If the terms of the plans do not permit
continued participation by the Participant or his eligible
dependents, the Company shall either arrange for substantially
similar coverage or provide the Participant with a cash
payment equal to the monetary equivalent thereof.
4.03.4 Benefits payable under this Plan shall be paid
in addition to, and not in lieu of, all other accrued or
vested or earned but deferred compensation rights, options, or
other benefits which may be owed to a Participant following
termination. Notwithstanding the foregoing, if any benefits
are payable under this Plan, a Participant shall not be
entitled to receive any benefits under any other severance or
change in control severance plan or program maintained by the
Company or any Subsidiary.
4.03.5 The Participant shall not be required to
mitigate damages or the amount of his Severance Benefit by
seeking other employment or otherwise, nor shall the amount of
his Severance Benefit be reduced by any compensation earned by
the Participant as a result of employment after his
termination of employment with the Company.
4.03.6 This Plan is intended to qualify as a plan
maintained for the purpose of providing deferred compensation
for a select group of management or highly
-7-
<PAGE> 8
compensated employees, within the meaning of Sections 201(2),
301(3) and 401(a)(1) of ERISA.
SECTION 5. SUCCESSOR TO COMPANY
This Plan shall bind any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) which becomes such after a Change
in Control of the Company has occurred to all or substantially all of the
business and/or assets of the Company in the same manner and to the same extent
that the Company would be obligated under this Plan if no succession had taken
place. In the case of any transaction in which a successor (which becomes such
after a Change in Control of the Company has occurred) would not by the
foregoing provision or by operation of law be bound by this Plan, the Company
shall require such successor expressly and unconditionally to assume and agree
to perform the Company's obligations under this Plan, in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. The term "Company," as used in this Plan, shall mean
the Company and any successor or assignee to the business or assets which by
reason hereof becomes bound by this Plan.
SECTION 6. DURATION, AMENDMENT AND TERMINATION
6.01 Duration. The Plan shall continue indefinitely unless terminated
as provided in subsection 6.02 hereof.
6.02 Amendment and Termination. Except as set forth below, the Plan may
not be amended or terminated at any time. The Plan may be terminated or amended
in any respect by a written resolution adopted by a majority vote of the Board
at any time prior to a Change in Control occurring or twenty-four (24) months
after a Change in Control has occurred. Notwithstanding the foregoing, the Plan
may be amended from time to time to the extent that such amendment increases the
benefits payable under the Plan or otherwise constitutes a bona fide improvement
of a Participant's rights under the Plan.
SECTION 7. ADMINISTRATION
7.01 Allocation of Responsibilities.
7.01.1 Board of Directors. The Board shall have exclusive
authority and responsibility for:
(a) The amendment or termination of this Plan in
accordance with subsection 6.02; and
(b) The delegation to the Committee of any authority
and responsibility reserved herein to the Board.
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<PAGE> 9
7.01.2 Committee. The Committee shall serve as plan
administrator and shall have exclusive authority and responsibility for
those functions set forth in subsection 7.02, and in other provisions
of this Plan.
7.02 Provisions Concerning the Committee.
7.02.1 Membership and Voting. The Committee shall serve as
plan administrator. The Committee shall consist of not less than three
(3) members. The Committee shall act by a majority of its members at
the time in office, and such action may be taken by a vote at a
meeting, in writing without a meeting, or by telephonic communications.
Attendance at a meeting shall constitute waiver of notice thereof. A
member of the Committee who is a Participant of the Plan shall not vote
on any question relating specifically to such Participant. Any such
action shall be voted or decided by a majority of the remaining members
of the Committee. The Committee shall designate one of its members as
the Chairman and shall appoint a Secretary who may, but need not, be a
member thereof. The Committee may appoint from its members such
subcommittees with such powers as the Committee shall determine.
7.02.2 Duties of the Committee. The Committee shall administer
the Plan in accordance with its terms and shall have all the powers
necessary to carry out such terms. The Committee shall execute any
certificate, instrument or other written direction on behalf of the
Plan and may make any payment on behalf of the Plan. All
interpretations of this Plan, and questions concerning its
administration and application, shall be determined by the Committee
(or its delegate). The Committee may appoint such accountants, counsel,
specialists, and other persons as it deems necessary or desirable in
connection with the administration of this Plan. Such accountants and
counsel may, but need not, be accountants and counsel for the Company
or a Related Party.
7.03 Delegation of Responsibilities; Bonding.
7.03.1 Delegation and Allocation. The Board, and the Committee
respectively, shall have the authority to delegate or allocate, from
time to time, by a written instrument, all or any part of their
responsibilities under this Plan to such person or persons as each may
deem advisable and in the same manner to revoke any such delegation or
allocation of responsibility. Any action of a person in the exercise of
such delegated or allocated responsibility shall have the same force
and effect for all purposes hereunder as if such action had been taken
by the Board, or the Committee. The Company, the Board, or the
Committee shall not be liable for any acts or omissions of any such
person, who shall periodically report to the Board or the Committee, as
applicable, concerning the discharge of the delegated or allocated
responsibilities.
7.03.2 Bonding. The members of the Committee shall serve
without bond (except as expressly required by federal law) and without
compensation for their services as such.
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<PAGE> 10
7.04 Information to be Supplied by the Company. The Company shall
provide to the Committee or its delegate such information as it shall from time
to time need in the discharge of its duties.
7.05 Claims Procedure.
7.05.1 Initial Claim for Benefits. Each Participant or
Beneficiary may submit his claim for benefits to the Committee (or to
such other person as may be designated by the Committee) in writing in
such form as is permitted by the Committee. A Participant shall have no
right to seek review of a denial of benefits, or to bring any action in
any court to enforce a claim for benefits prior to his filing a claim
for benefits and exhausting his rights to review under paragraphs
7.05.1 and 7.05.2.
When a claim for benefits has been filed properly, such claim
for benefits shall be evaluated and the claimant shall be notified of
the approval or the denial within ninety (90) days after the receipt of
such claim unless special circumstances require an extension of time
for processing the claim. If such an extension of time for processing
is required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial ninety (90) day period
which shall specify the special circumstances requiring an extension
and the date by which a final decision will be reached (which date
shall not be later than one hundred and eighty (180) days after the
date on which the claim was filed). A claimant shall be given a written
notice in which the claimant shall be advised as to whether the claim
is granted or denied, in whole or in part. If a claim is denied, in
whole or in part, the claimant shall be given written notice which
shall contain (a) the specific reasons for the denial, (b) references
to pertinent plan provisions upon which the denial is based, (c) a
description of any additional material or information necessary to
perfect the claim and an explanation of why such material or
information is necessary, and (d) the claimant's rights to seek review
of the denial.
7.05.2 Review of Claim Denial. If a claim is denied, in whole
or in part, the claimant shall have the right to request that the
Committee review the denial, provided that the claimant files a written
request for review with the Committee within sixty (60) days after the
date on which the claimant received written notification of the denial.
A claimant (or his duly authorized representative) may review pertinent
documents and submit issues and comments in writing to the Committee.
Within sixty (60) days after a request for review is received, the
review shall be made and the claimant shall be advised in writing of
the decision on review, unless special circumstances require an
extension of time for processing the review, in which case the claimant
shall be given a written notification within such initial sixty (60)
day period specifying the reasons for the extension and when such
review shall be completed (provided that such review shall be completed
within one hundred and twenty (120) days after the date on which the
request for review was filed). The decision on review shall be
forwarded to the claimant in writing and shall include specific reasons
for the decision and references to plan provisions upon which the
decision is based. If a claimant shall fail to file a request for
review in accordance with the procedures herein outlined, such
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<PAGE> 11
claimant shall have no rights to review and shall have no right to
bring action in any court and the denial of the claim shall become
final and binding on all persons for all purposes.
SECTION 8. TAX PAYMENTS
8.01 Gross-up Payments. If the Severance Benefit and any other
compensation or benefits paid to any Participant in the event of a Change in
Control are determined to be subject to the excise tax imposed under Section
4999 of the Code (collectively, with any interest or penalties incurred by the
Participant relative thereto and any federal and state excise or income taxes
resulting from payments made pursuant to this subsection 8.01, the "Excise
Tax"), the Company shall pay the Participant one or more cash payments
("Gross-up Payment") sufficient to pay the Excise Tax.
8.02 Determinations. Subject to the provisions of subsection
8.03 hereof, all determinations required to be made under this Section 8,
including without limitation whether the Gross-up Payment is required and the
amount of the Gross-up Payment, shall be made by a nationally recognized
independent accounting firm to be selected by the Company (the "Accounting
Firm"). Each Participant shall provide the Accounting Firm any information
reasonably requested by it necessary to make such determination, including
without limitation copies of the Participant's tax returns for the periods
affected, all of which shall be maintained in confidence by the Accounting Firm.
The Accounting Firm shall provide detailed supporting calculations together with
its written opinion with respect to the accuracy of such calculations to the
Company and the Participant within fifteen (15) business days of the date of
termination. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. The initial Gross-up Payment, if any, as determined pursuant to
this subsection 8.02 shall be paid to the Participant within five (5) business
days of the receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Participant, it shall also
furnish the Participant with an opinion that failure to report the Excise Tax on
the Participant's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty and in the absence of such an
opinion, a Gross-up Payment in the amount which the Accounting Firm determines
to be payable shall be due and payable to the Participant. Except as provided in
the preceding sentence, any determination by the Accounting Firm shall be
binding upon the Company and the Participant. As a result of uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-up Payments which
shall not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts the remedies provided in subsection 8.03 hereof and
the Participant thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Participant.
8.03 Claims. The Participant shall notify the Company in
writing of any claim by the Internal Revenue Service ("IRS") that, if
successful, would require the payment by the Company of the Gross-up Payment;
provided, that failure by the Participant to give such notification shall not
affect any of the Participant's rights or the obligations of the Company under
this Plan. Such notification shall be given as soon as practicable but no later
than ten (10) business days after the Participant knows of such claim and shall
apprise the Company of the nature of such claim and the
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<PAGE> 12
date on which such claim is requested to be paid. The Participant shall not pay
such claim prior to the expiration of the thirty (30) calendar day period
following the date on which the Participant gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Participant in writing prior to
the expiration of such period that it desires to contest such claim, the
Participant shall:
(a) give the Company any information reasonably requested
relating to such claim,
(b) take such action in connection with contesting such claim
as the Company may reasonably request in writing from time to
time, including without limitation accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(c) cooperate with Company in good faith in order effectively
to contest such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Participant harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation, and
payment of costs and expenses. Without limiting the foregoing, the Company shall
control all proceedings taken in connection with such contest and, at the sole
option of the Company may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Participant to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Participant shall prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company may determine; provided, however, that if the
Company directs the Participant to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis, and shall indemnify and hold the Participant harmless, on
an after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided, that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Participant with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the control of the contest by the Company shall be limited
to issues with respect to which a Gross-up Payment would be payable hereunder
and the Participant shall be entitled to settle or contest, as the case may be,
any other issue raised by the IRS or any other taxing authority.
8.04 Refunds. If, after the receipt by the Participant of an
amount advanced by the Company pursuant to subsection 8.03 hereof, the
Participant becomes entitled to receive any refund with respect to such claim,
the Participant shall (subject to compliance by the Company with the
requirements of subsection 8.03 hereof) promptly pay to the Company the amount
of such refund
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<PAGE> 13
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Participant of an amount advanced by the
Company pursuant to subsection 8.03 hereof, a determination is made that the
Participant is not entitled to any refund with respect to such claim and the
Company does not notify the Participant in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) calendar days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-up Payment required to be paid. Any contest of a denial
refund shall be controlled by subsection 8.03 hereof.
SECTION 9. PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary. Upon such adoption, the
Subsidiary shall become an Employer and the provisions of the Plan shall be
fully applicable to the Employees of that Subsidiary. This Plan establishes and
vests in each Participant a contractual right to the benefits to which he is
entitled hereunder, enforceable by the Participant against his Employer. The
Company agrees unconditionally to guarantee the performance by, and obligation
of, each Employer under the Plan.
SECTION 10. MISCELLANEOUS
10.01 Payment Obligations Absolute. The Company's obligation to pay any
amounts or to provide benefits continuation or any other benefits described in
subsection 4.03 hereof shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company or any of its
Subsidiaries may have against any Participant.
1.02 Indemnification. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by the Plan, the
Company shall, if the Participant prevails in such action, pay for all
reasonable legal fees and expenses incurred by such Participant.
10.03 Employment Status. The Plan does not constitute a contract of
employment or impose on the Participant or the Company any obligation to retain
the Participant as an Employee, to change the status of the Participant's
employment, or to change the policies of the Company or its Subsidiaries
regarding termination of employment.
10.04 Validity and Severability. The invalidity or unenforceability of
any provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.05 Governing Law. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
United States and, to the extent not preempted by such laws, by the laws of the
State of Delaware, without regard to choice of law principles.
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<PAGE> 14
10.06 Withholding of Taxes. The Company or its Subsidiaries may
withhold from any amounts payable under the Plan all federal, state, city and/or
other taxes as shall be legally required.
10.07 Obligations Unfunded. All benefits due a Participant under this
Plan are unfunded and unsecured and are payable out of the general funds of the
Company. The Company and/or one or more Subsidiaries may establish a "grantor
trust" for the payment of benefits and obligations hereunder, the assets of
which shall be at all times subject to the claims of creditors as provided for
in such trust.
10.08 Construction. For purposes of this Plan, the following rules of
construction shall apply:
10.08.1 No act or failure to act on the Participant's part
shall be considered "willful" unless done or omitted to be done by the
Participant not in good faith and without reasonable belief that such
act or omission was in the best interest of the Company or a
Subsidiary.
10.08.2 The word "or" is disjunctive but not necessarily
exclusive.
10.08.3 Words in the singular include the plural; words in the
plural include the singular; and words in the neuter gender include the
masculine and feminine genders and words in the masculine or feminine
gender include the other and neuter genders.
This Plan has been amended and restated by the Company to be effective
as of the 1st day of June 1999.
WILLIAMS COMMUNICATIONS GROUP, INC.
By:
----------------------------------------
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<PAGE> 1
EXHIBIT 10.57
LOAN AGREEMENT AND PROMISSORY NOTE
$1,000,000,000 [month day, 1999]
For value received, WILLIAMS COMMUNICATIONS, INC., a Delaware corporation
(the "Borrower"), promises to pay to the order of THE WILLIAMS COMPANIES, INC.
(the "Lender"), the aggregate principal amount of $1,000,000,000 in immediately
available funds at the main office of Lender, together with interest on the
unpaid principal amount at the rate set forth below, according to the repayment
terms set forth below.
1. REPAYMENT.
(a) Mandatory Repayment. The Borrower agrees to repay principal to the
Lender according to the amortization schedule attached hereto as Exhibit
A.
(b) Optional Repayment. The Borrower may prepay amounts due under this
Loan Agreement and Promissory Note at any time and may make partial
prepayments from time to time without penalty.
2. INTEREST.
(a) Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed at a Eurodollar rate per annum plus 2.25
percent. The interest rate will be a fixed rate for the entire calendar
month commencing on the first calendar day of the month and ending on the
last calendar day of the month. The Borrower shall pay interest on the
unpaid principal amount monthly on the 25th day of each month and on the
date of payment in full.
(b) Any amount not paid when due shall bear interest, from the date on
which such amount is due until such amount is paid in full, at a rate per
annum equal to the sum of the rate per annum required to be paid on such
amount plus two percent per annum.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants as follows:
(a) Borrower is a corporation duly incorporated and existing in good
standing under the laws of the state of Delaware, is duly qualified to do
business
1
<PAGE> 2
and is in good standing in every state where the nature or extent of its
business or properties requires it to be qualified to do business, except
where such failure is not reasonably likely to have a material effect on
Borrower's ability to conduct business, and has the power and authority to
own its properties and carry out its business as now being conducted.
(b) The execution, delivery, and performance of the terms of this Loan
Agreement and Promissory Note are within Borrower's corporate powers, have
been duly authorized, and do not contravene any applicable law, its
certificate of incorporation, bylaws, or any other contract, agreement, or
undertaking to which it is a party or by which it is bound.
(c) Borrower has good and marketable title to all real property and
good and indefeasible title to all material personal property purported to
be owned by it and reflected in its most recent financial statements,
dated March 31, 1999. Borrower's assets are subject to no liens except (i)
liens given by Borrower in connection with its Asset Defeasance Program;
(ii) liens for taxes being contested in good faith; (iii) carriers',
warehousemen's, materialmen's, and mechanics' liens and other similar
liens imposed by law and arising in the ordinary course of business in
connection with Borrower's operations; and (iv) purchase money security
interests in discrete items of equipment.
4. EVENTS OF DEFAULT. Borrower shall be in default of its obligations
under this Loan Agreement and Promissory Note upon the occurrence of any one of
the following events ("Events of Default"):
(a) Failure to comply with any material term, condition, or provision
of this Loan Agreement and Promissory Note;
(b) Any representation or warranty made by Borrower proves to have
been incorrect in any material respect when made;
(c) Borrower makes a general assignment for the benefit of creditors
or commences a voluntary case under any applicable bankruptcy, insolvency,
or other similar law;
(d) The appointment of a receiver, trustee, or other similar official
for all or substantially all of Borrower's property or assets, or the
filing of a bankruptcy petition against Borrower in a court of competent
jurisdiction that commences an involuntary case under any applicable
bankruptcy, insolvency, or other similar law, which appointment or
petition is not dismissed within sixty (60) days;
2
<PAGE> 3
(e) The making of any levy, seizure, or attachment of or on any of
Borrower's asset or any portion thereof, or the issuance of any injunction
with respect to the use or sale of Borrower's assets or any portion
thereof.
5. REMEDY UPON DEFAULT. If any Event of Default shall have occurred,
Lender may declare all or any part of the outstanding obligations under this
Loan Agreement and Promissory Note immediately due and payable.
6. NO WAIVER. Lender shall not be deemed to have waived any of its
rights under this Loan Agreement and Promissory Note or any other agreement,
instrument, or paper unless such waiver shall be in writing and executed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, without regard to its choice
of law principles.
8. ASSIGNMENT AND MODIFICATION. This Loan Agreement and Promissory
Note is binding upon the parties and their respective successors and permitted
assigns. Borrower may not assign its rights or delegate its duties under this
Loan Agreement and Promissory Note without the prior written consent of Lender.
This Agreement cannot be changed, modified, or assigned except in a writing
signed by both the Lender and Borrower.
9. COSTS. Borrower agrees to pay all costs, including reasonable
attorneys' fees, incurred by the holder in enforcing payment hereof.
WILLIAMS COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
3
<PAGE> 4
EXHIBIT A
AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Year Ending Amount Due
----------- ----------
<S> <C>
12/31/99 0
12/31/00 $12,500,000
12/31/01 $25,000,000
12/31/02 $25,000,000
12/31/03 $25,000,000
12/31/04 $25,000,000
12/31/05 $25,000,000
12/31/06 $862,500,000
</TABLE>
4
<PAGE> 1
EXHIBIT 10.58
EXECUTION COPY
June 2, 1999
WILLIAMS COMMUNICATIONS, INC.
SENIOR CREDIT FACILITIES
FEE LETTER
Williams Communications, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention:
Ladies and Gentlemen:
Reference is made to the letter of even date herewith from Bank of
America, N.A. (NationsBank, N.A. d/b/a Bank of America, N.A.) ("Bank of
America"), The Chase Manhattan Bank Chase Securities Inc. ("Chase") and Banc of
America Securities LLC ("BAS") to you (the "Commitment Letter"). Unless
otherwise defined herein, terms defined or used in the Commitment Letter or the
Term Sheet annexed thereto have their respective defined meanings when used
herein. This letter is the "Fee Letter" referred to in the Commitment Letter.
By your signature below you agree to pay the following non-refundable
fees:
Structuring and
Arrangement Fee: To Bank of America and Chase, a
Structuring and Arrangement Fee
of 2.00% of the greater of (i)
the aggregate of the commitments
under the Facilities as in effect
on the date hereof and (ii) the
aggregate of the commitments
under the Facilities as in effect
on the Closing Date, such
Structuring and Arrangement Fee
to be payable on the Closing
Date; provided that if the
commitments of the Primary
Lenders shall terminate without
the Closing Date occurring, the
Borrower shall pay, on the date
of such termination, to each of
Bank of America and Chase,
$1,250,000, unless CSI and BAS
shall have requested that the
Facilities be secured pursuant to
the first full paragraph on the
second page hereof and you reject
such request and terminate the
commitments of Bank of America
and Chase.
<PAGE> 2
Ticking Fee: To each of Bank of America and
Chase, a Ticking Fee of .50% per
annum on the aggregate amount of
its commitment under the
Facilities for each day during
the period commencing on the date
of acceptance of the Commitment
Letter and this Fee Letter and
continuing to, but not
including, the Closing Date. From
and after the Closing Date,
ticking, commitment and other
similar fees will accrue and be
payable under, and in accordance
with, the Credit Agreement.
Agency Fee: An annual agency fee in an amount
to be agreed by Bank of America
and you shall be paid to Bank of
America, N.A. (NationsBank, N.A.
d/b/a Bank of America, N.A.), as
Administrative Agent, on the
Closing Date and on each
anniversary thereof, until the
Facilities shall have terminated
in their entirety and all
obligations to the Lenders and
the Administrative Agent in
respect thereof shall have been
paid in full.
In the event that the syndication of the Facilities cannot be achieved
in a manner satisfactory to CSI and BAS under the structure outlined in the Term
Sheet, you agree that CSI and BAS shall be entitled, in consultation with you,
to change the pricing, structure, amount or other terms of the Facilities if CSI
and BAS determine that such changes are advisable to ensure a successful
syndication or an optimal credit structure. You may reject such changes and
terminate the commitments of Bank of America and Chase.
If the Facilities are oversubscribed and the commitments of Bank of
America and Chase are reduced to their target hold levels, CSI and BAS, at your
request and subject to the consent of the Lenders, will use their commercially
reasonable efforts to increase the aggregate commitments in respect of the
Facilities by up to $500,000,000 (to be allocated pro rata between the Term
Facility and the Revolving Facility) (it being understood that none of CSI, BAS,
Bank of America or Chase shall have any obligation to increase its commitments
in connection with any such increase in the Facilities).
This Fee Letter is delivered to you on the understanding that neither
it nor any of its terms or substance shall be disclosed, directly or indirectly,
to any other person except (a) to your or the Parent's officers, agents and
advisors who are directly involved in the consideration of this matter or (b) as
may be compelled in a judicial or administrative proceeding or as otherwise
required by law (in which case you agree to inform us promptly thereof).
2
<PAGE> 3
If you are in agreement with the foregoing, please sign and return the
enclosed counterparts of this letter to Bank of America and Chase.
Very truly yours,
BANK OF AMERICA
(NATIONSBANK, N.A. d/b/a
BANK OF AMERICA, N.A.)
By
------------------------------------
THE CHASE MANHATTAN BANK
By
------------------------------------
CHASE SECURITIES INC.
By
------------------------------------
BANC OF AMERICA
SECURITIES LLC
By
------------------------------------
AGREED AND ACCEPTED
WILLIAMS COMMUNICATIONS, INC.
By
-----------------------------------
Date: June __, 1999
3
<PAGE> 4
EXECUTION COPY
June 2, 1999
WILLIAMS COMMUNICATIONS, INC.
SENIOR CREDIT FACILITIES
COMMITMENT LETTER
Williams Communications, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention:
Ladies and Gentlemen:
Williams Communications, Inc. ("you" or the "Borrower"), a wholly-owned
subsidiary of Williams Communications Group, Inc. ("Holdings"), a wholly-owned
subsidiary of The Williams Companies, Inc. (the "Parent") has requested that
Chase Securities Inc. ("CSI") and Banc of America Securities LLC ("BAS") agree
to act as Joint Lead Arrangers and Joint Book Managers in structuring, arranging
and syndicating up to $1,000,000,000 in senior credit facilities (the
"Facilities"), and that each of Bank of America, N.A. (NationsBank, N.A. d/b/a
Bank of America, N.A.) ("Bank of America") and The Chase Manhattan Bank ("Chase"
and, together with Bank of America, the "Primary Lenders") commit to provide
$500,000,000 of the Facilities and to serve as Administrative Agent and
Syndication Agent, respectively, for the Facilities. Your request for the
Facilities is made in connection with (i) the contribution by the Parent of
material subsidiaries that hold interests in international communications
projects and the contribution by Holdings of all of its material subsidiaries
(other than the Borrower), in each case to the Borrower (the "Reorganization"),
and (ii) (x) the proposed issuance by Holdings of not less than $1,000,000,000
of its common stock (the "Equity Issuance") and (y) a proposed offering by
Holdings of $1,300,000,000 of high yield senior notes due 2009 (the "Notes
Offering").
CSI and BAS are pleased to advise you that they are willing to act as
joint book managers and joint lead arrangers for the Facilities. Bank of America
is pleased to advise you of its commitment to provide up to $500,000,000 of the
Facilities and
<PAGE> 5
Chase is pleased to advise you of its commitment to provide up to $500,000,000
of the Facilities (each such commitment to be allocated pro rata among each of
the Term Facility and Revolving Facility referred to below), in each case
subject to the terms and conditions set forth or referred to in this Commitment
Letter and in the Summary of Principal Terms and Conditions attached hereto as
Exhibit A (the "Term Sheet"). Subject to the terms of this Commitment Letter and
the Term Sheet, the Facilities will consist of (i) a $500,000,000 7-year senior
multi-draw amortizing term loan facility (the "Term Facility") and (ii) a
$500,000,000 6-year senior reducing revolving credit facility (with a letter of
credit sub-limit and a swingline loan sub-limit) (the "Revolving Facility").
It is agreed that Bank of America and Chase will act as the sole and
exclusive Administrative Agent and Syndication Agent, respectively, and that CSI
and BAS will act as the sole and exclusive advisors, book managers and arrangers
(in such capacity, the "Arrangers") for the Facilities, and each will, in such
capacities, perform the duties and exercise the authority customarily performed
and exercised by it in such roles. You agree that no other agents, co-agents or
arrangers will be appointed, no other titles will be awarded (other than the
appointment of certain institutions previously agreed upon as Co-Documentation
Agents and the appointment of Managing Agents to be mutually agreed upon) and
no compensation (other than that expressly contemplated by the Term Sheet and
the Fee Letter referred to below) will be paid in connection with the Facilities
unless you and we shall so agree.
CSI and BAS intend to syndicate the Facilities (including, in their
discretion, all or part of Bank of America's and Chase's commitments hereunder)
to a group of financial institutions (together with Bank of America and Chase,
the "Lenders") identified by them in consultation with you. CSI and BAS intend
to commence syndication efforts in respect of the Facilities promptly upon the
execution of this Commitment Letter and you agree actively to assist CSI and BAS
in completing such syndication satisfactorily to them. Such assistance shall
include (a) your and the Parent's using commercially reasonable efforts to
ensure that the syndication efforts benefit materially from your existing
lending relationships, (b) direct contact between senior management and advisors
of the Parent and the Borrower and the proposed Lenders, (c) assistance in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with CSI and BAS, of one or more meetings of prospective Lenders.
It is understood and agreed that CSI and BAS, in consultation with you,
will manage and control all aspects of the syndication, including decisions as
to the selection of the proposed Lenders and any titles offered to the proposed
Lenders,
2
<PAGE> 6
when commitments will be accepted, the final allocations of the commitments
among the Lenders and the amount and distribution of fees among the Lenders.
Upon the acceptance of the commitment of any Lender to provide a portion of any
of the Facilities, Bank of America and Chase shall be released pro rata from a
portion of their commitments with respect to such Facility in an aggregate
amount equal to the commitment of such Lender. In acting as Arrangers, CSI and
BAS will have no responsibility other than to arrange the syndications.
To assist CSI and BAS in their syndication efforts, you agree promptly
to prepare and provide to CSI and BAS all information with respect to the
Parent, Holdings, the Borrower and their respective subsidiaries and affiliates,
the Equity Issuance, the Notes Offering and the other transactions contemplated
hereby, including all financial information and Projections (the "Projections"),
as we may reasonably request in connection with the arrangement and syndication
of the Facilities. You hereby represent and covenant that (a) all information
other than the Projections (the "Information") that has been or will be made
available to CSI, BAS or any of the Lenders by you or any of your
representatives, taken as a whole, is or will be, when furnished, complete and
correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made
and (b) the Projections that have been or will be made available to CSI, BAS or
any of the Lenders by you or any of your representatives have been or will be
prepared in good faith based upon reasonable assumptions. You understand that in
arranging and syndicating the Facilities, we may use and rely on the Information
and Projections without independent verification thereof.
As consideration for each Primary Lender's commitment hereunder and
CSI's and BAS's agreement to perform the services described herein, you agree to
pay to the Administrative Agent, for the accounts of the Arrangers and the
Primary Lenders, the nonrefundable fees set forth in Annex I to the Term Sheet
and in the Fee Letter dated the date hereof and delivered herewith (the "Fee
Letter").
Each Primary Lender's commitment hereunder and CSI's and BAS's
agreement to perform the services described herein is subject to (a) there not
occurring or becoming known to such person any material adverse condition or
material adverse change in or affecting the business, operations, property,
condition (financial or otherwise) or prospects of Holdings and its subsidiaries
and affiliates (including the Borrower), taken as a whole, or the Parent and its
subsidiaries and affiliates, taken as a whole, (b) such person's completion of
and satisfaction in all respects with a due
3
<PAGE> 7
diligence investigation of Holdings and its subsidiaries and affiliates
(including the Borrower and its domestic and foreign subsidiaries and
affiliates), including investigation as to business, financial (including
projections), legal, tax, accounting and environmental matters and other
structural and ownership matters, (c) such person's not becoming aware after the
date hereof of any information or other matter affecting Holdings or any of its
subsidiaries or affiliates (including the Borrower) which is inconsistent in a
material and adverse manner with any such information or other matter disclosed
to such person prior to the date hereof, (d) there not having occurred a
material disruption of or material adverse change in financial, banking or
capital market conditions that, in the judgment of such person, could materially
impair the syndication of the Facilities, (e) such person's satisfaction that
prior to and during the syndication of the Facilities there shall be no
competing offering, placement or arrangement of any debt securities or bank
financing (other than the Notes Offering) by or on behalf of the Parent or
Holdings or any subsidiary or affiliate thereof (including the Borrower) without
the consent of the Arrangers, (f) receipt of pro forma income statements and
balance sheets of Holdings and its consolidated subsidiaries, prepared as of the
most recent fiscal quarter ended prior to the date of execution and delivery of
the documentation referred to below having given effect to the Reorganization,
the initial borrowings under the Facilities and, if the Equity Issuance and the
Notes Offering shall have been consummated on or prior to the closing date in
respect of the Facilities, the Equity Issuance and the Notes Offering, (g) such
person's review of, and satisfaction in its sole discretion with, (i) the
arrangements with respect to the Borrower's and the Parent's agreements to
purchase at the end of the lease term (or, at their option, earlier) all of the
ADP property (but only with, in the case of the Borrower, Additional Capital (as
defined in the Term Sheet)) and, in the case of a purchase by the Parent, to
contribute such property to the Borrower in exchange for equity securities of
Holdings or Qualifying Subordinated Debt (as defined in the Term Sheet) and (ii)
the waivers obtained under, and the amendments effected to, the ADP, (h) the
negotiation, execution and delivery on or before September 1, 1999 of definitive
documentation with respect to the Facilities satisfactory to such person and its
counsel, (i) the consummation of the Reorganization, (j) either (x) (1) the
receipt by Holdings of gross proceeds from the Equity Issuance of not less than
$1,000,000,000 and (2) the receipt by Holdings of gross proceeds from the Notes
Offering of not less than $1,300,000,000 or (y) a guarantee by the Parent of all
of the obligations of the Borrower in respect of the Facilities, in form and
substance satisfactory to the Primary Lenders, and (k) the other conditions set
forth or referred to in the Term Sheet. The terms and conditions of the Primary
Lenders' commitments hereunder, CSI's and BAS's agreement to perform the
services described herein and of the Facilities are not limited to those set
forth herein and in the Term Sheet. Those matters that are not covered by the
provisions hereof and of the Term Sheet are
4
<PAGE> 8
subject to the approval and agreement of the Primary Lenders, CSI, BAS and the
Borrower.
You agree (a) to indemnify and hold harmless CSI, BAS, each Primary
Lender, their respective affiliates and their respective officers, directors,
employees, advisors, and agents (each, an "indemnified person") from and against
any and all losses, claims, damages and liabilities to which any such
indemnified person may become subject arising out of or in connection with this
Commitment Letter, the Fee Letter, the Facilities, the use of the proceeds
thereof or any related transaction or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any
indemnified person is a party thereto, and to reimburse each indemnified person
upon demand for any legal or other expenses incurred in connection with
investigating or defending any of the foregoing, provided that the foregoing
indemnity will not, as to any indemnified person, apply to losses, claims,
damages, liabilities or related expenses to the extent they are found by a
final, nonappealable judgment of a court to arise from the willful misconduct
or gross negligence of such indemnified person, and (b) to reimburse CSI, BAS,
each Primary Lender and their respective affiliates on demand for all reasonable
out-of-pocket expenses (including due diligence expenses, syndication expenses,
reasonable travel expenses, and reasonable fees, charges and disbursements of
counsel) incurred in connection with the Facilities and any related
documentation (including this Commitment Letter, the Term Sheet, the Fee Letter
and the definitive credit documentation) or the administration, amendment,
modification or waiver thereof. No indemnified person shall be liable for any
indirect or consequential damages in connection with its activities related to
the Facilities. No indemnified person shall be liable for any damages arising
from the use by others of Information or other materials obtained through
electronic, telecommunications or other information transmission systems or for
any special, indirect, consequential, exemplary or punitive damages in
connection with the Facilities.
This Commitment Letter shall not be assignable by you without the prior
written consent of CSI, BAS and the Primary Lenders (and any purported
assignment without such consent shall be null and void), is intended to be
solely for the benefit of the parties hereto and is not intended to confer any
benefits upon, or create any rights in favor of, any person other than the
parties hereto and, in the case of the preceding paragraph, the indemnified
parties. This Commitment Letter may not be amended or waived except by an
instrument in writing signed by you, CSI, BAS and each Primary Lender. This
Commitment Letter may be executed in any number of counterparts, each of which
shall be an original and all of which, when taken together, shall constitute one
agreement. Delivery of an executed signature page of this Commitment
5
<PAGE> 9
Letter by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof. This Commitment Letter (including the Term Sheet
annexed hereto) and the Fee Letter are the only agreements that have been
entered into among us with respect to the Facilities and set forth the entire
under standing of the parties with respect thereto. This Commitment Letter, the
Term Sheet and the Fee Letter shall be governed by, and construed in accordance
with, the laws of the State of New York. Each of the Borrower, CSI, BAS and the
Primary Lenders hereby submits to the jurisdiction of the United States District
Court for the Southern District of New York and of any New York State court
sitting in New York City for the purpose of all legal proceedings arising out of
or relating to this Commitment Letter, the Term Sheet, the Fee Letter or the
transactions contemplated hereby or thereby. Each of the Borrower, CSI, BAS and
the Primary Lenders hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum and
to the right to have a trial by jury.
This Commitment Letter is delivered to you on the understanding that
none of this Commitment Letter, the Term Sheet or the Fee Letter or any of their
terms or substance shall be disclosed, directly or indirectly, to any other
person except (a) to your or the Parent's officers, agents and advisors who are
directly involved in the consideration of this matter or (b) as may be compelled
in a judicial or administrative proceeding or as otherwise required by law (in
which case you agree to inform us promptly thereof), provided, that the
foregoing restrictions shall cease to apply (except in respect of the Fee Letter
and its terms and substance) after this Commitment Letter has been accepted by
you.
You acknowledge that CSI, BAS and each Primary Lender may be providing
debt financing, equity capital or other services (including financial advisory
services) to other companies in respect of which you may have conflicting
interests regarding the transactions described herein and otherwise. None of
CSI, BAS or either Primary Lender will use confidential information obtained
from you by virtue of the transactions contemplated by this letter or their
other relationships with you in connection with the performance by it of
services for other companies, and none of CSI, BAS or either Primary Lender will
furnish any such information to other companies. You also acknowledge that none
of CSI, BAS or either Primary Lender has any obligation to use in connection
with the transactions contemplated by this letter, or to furnish to you,
confidential information obtained from other companies. You consent to the use
by CSI, BAS and each Primary Lender of your name and a description of the amount
6
<PAGE> 10
and type of the Facilities in advertisements published after the date of
execution and delivery of definitive credit documentation.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether definitive financing documentation shall be
executed and delivered and notwithstanding the termination of this Commitment
Letter, the Primary Lenders' commitments hereunder or CSI's and BAS's agreement
to perform the services described herein.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to Bank of America and Chase executed counterparts hereof and of the
Fee Letter not later than 5:00 p.m., New York City time, on June 4, 1999. Each
Primary Lender's commitment and CSI's and BAS's agreements herein will expire at
such time in the event Bank of America and Chase have not received such executed
counterparts in accordance with the immediately preceding sentence.
Bank of America, Chase, CSI and BAS are pleased to have been given the
opportunity to assist you in connection with this important financing.
Very truly yours,
BANK OF AMERICA, N.A.
(NATIONSBANK, N.A. d/b/a BANK
OF AMERICA, N.A.)
By:
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By:
------------------------------------
Name:
Title:
7
<PAGE> 11
CHASE SECURITIES INC.
By:
------------------------------------
Name:
Title
BANC OF AMERICA
SECURITIES LLC
By:
------------------------------------
Name:
Title:
Accepted and agreed to as of
the date first written above by:
WILLIAMS COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
8
<PAGE> 12
EXHIBIT A
SENIOR CREDIT FACILITIES
Summary of Principal Terms and Conditions
June 2, 1999
I. PARTIES
Borrower: Williams Communications, Inc.
(the "Borrower"), a wholly-owned
subsidiary of Williams
Communications Group, Inc.
("Holdings").
Joint Book Managers
and Joint Lead Arrangers: Chase Securities Inc. and Banc of
America Securities LLC (in such
capacities, the "Arrangers").
Administrative Agent: Bank of America, N.A.
(NationsBank, N.A. d/b/a Bank of
America, N.A.) ("Bank of
America").
Syndication Agent: The Chase Manhattan Bank
("Chase").
Managing Agents: A group of financial institutions
reasonably accept able to the
Arrangers and the Borrower.
Lenders: A syndicate of banks, financial
institutions and other entities,
including Bank of America and
Chase, arranged by the Arrangers
(collectively, the "Lenders").
Letter of Credit
Issuing Banks: Bank of America and Chase (each,
an "Issuer").
Swingline Lenders: Bank of America and Chase (the
"Swingline Lenders").
II. SENIOR CREDIT FACILITIES
Type and Amount of
Facilities: (i) A multi-draw 7-year
amortizing senior term loan
facility in an aggregate
principal amount of
<PAGE> 13
$500,000,000 (the "Term Facility"
and the loans thereunder, the
"Term Loans").
(ii) A 6-year senior reducing
revolving credit facility (the
"Revolving Facility") in the
amount of $500,000,000 (the loans
thereunder, the "Revolving
Loans", and together with the
Term Loans and any loans under
any Incremental Facility (as
defined below), the "Loans").
(iii) The Borrower may request,
by notice to the Administrative
Agent and the Syndication Agent
at any time prior to the second
anniversary of the Closing Date,
at which time no default or event
of default shall have occurred
and be continuing, one or more
additional facilities each of
which shall be in an aggregate
principal amount of not less than
$100,000,000 and all of which
together shall not exceed
$500,000,000 in aggregate
principal amount (any such
additional facility, an
"Incremental Facility" and
together with the Term Facility
and the Revolving Facility, the
"Facilities"). The terms and
conditions of any such
Incremental Facility shall be as
agreed by the Borrower, the
Arrangers, the Syndication Agent
and the Administrative Agent,
provided that the average life
to maturity of the loans and
commitments under any such
Incremental Facility shall not be
less than the then existing
average life to maturity of the
Term Facility or the Revolving
Facility. Any such Incremental
Facility shall be offered, first,
on a pro rata basis to existing
Lenders and, to the extent that
the existing Lenders do not elect
to subscribe for any such
Incremental Facility, to such
other financial institutions as
the Borrower, the Syndication
Agent, the Administrative Agent
and the Arrangers shall agree. No
Lender shall have any obligation
to participate in any such
Incremental Facility.
Letters of Credit: A portion of the Revolving
Facility, not in excess of
$100,000,000, shall be available
for the issuance of
2
<PAGE> 14
letters of credit (the "Letters
of Credit") by the Issuers. No
Letter of Credit shall have an
expiration date after the earlier
of (a) one year after the date of
issuance and (b) five business
days prior to the Revolving
Facility Termination Date,
provided that any Letter of
Credit with a one-year tenor may
provide for the renewal thereof
for additional one-year periods
(which shall in no event extend
beyond the date referred to in
clause (b) above).
Drawings under any Letter of
Credit shall be reimbursed by
the Borrower (whether with its
own funds or with the proceeds of
Revolving Loans) on the same
business day. To the extent that
the Borrower does not so
reimburse the applicable Issuer,
the Lenders under the Revolving
Facility shall be irrevocably and
unconditionally obligated to
reimburse such Issuer on a pro
rata basis.
Swingline Loans: A portion of the Revolving Credit
Facility not in excess of
$50,000,000 shall be available
for swingline loans (the
"Swingline Loans") ratably from
the Swingline Lenders on same-day
notice to the Administrative
Agent. Any such Swingline Loans
will re duce availability under
the Revolving Credit Facility on
a dollar-for-dollar basis. Each
Lender under the Revolving Credit
Facility shall acquire, under
certain circumstances, an
irrevocable and unconditional pro
rata participation in each
Swingline Loan.
Availability: The Term Facility will be
available on a non-revolving
basis in multiple drawdowns (each
of which shall be in a minimum
amount to be agreed) occurring
during the period commencing on
the Closing Date and ending on
the date immediately prior to the
first anniversary of the Closing
Date (the "Term Facility
Termination Date").
The Revolving Facility will be
available on a revolving basis
during the period commencing on
the Closing
3
<PAGE> 15
Date and ending on the date
immediately prior to the sixth
anniversary of the Closing Date
(the "Revolving Facility
Termination Date").
Final Maturities: (i) Term Loans shall mature on
the seventh anniversary of the
Closing Date.
(ii) The commitments in respect
of the Revolving Facility shall
terminate, and all Revolving
Loans shall mature, on the sixth
anniversary of the Closing Date.
Purpose: The proceeds of the Term
Facilities and the Revolving
Facility shall be used (i) to
refinance the Existing Revolver
(as defined under "Initial
Conditions" be low), (ii) to make
capital expenditures and for
working capital requirements and
general corporate purposes of
the Borrower and its
subsidiaries, (iii) to repay the
Intercompany Note, to the extent
permitted herein, (iv) to pay the
fees and expenses associated with
the Facilities and (v) to make
permitted acquisitions.
III. CERTAIN PAYMENT PROVISIONS
Fees and Interest Rates: As set forth in Annex I.
Amortization Payments/
Reduction of Commitments: (i) Term Loans shall be repaid in
the aggregate percentages per
transaction year set forth below
(such amount to be paid in four
equal quarterly installments in
each transaction year).
<TABLE>
<CAPTION>
Transaction Year Amortization Percentage
---------------- -----------------------
<S> <C>
4th Year 15%
5th Year 25%
6th Year 30%
7th Year 30%
</TABLE>
(ii) The commitments under the
Revolving Facility shall be
permanently reduced in the
aggregate percentages
4
<PAGE> 16
per transaction year set forth
below (such amount to be applied
in four equal quarterly amounts
in each transaction year).
Concurrently therewith, Revolving
Loans shall be repaid (and cash
collateral will be provided in
respect of outstanding Letters of
Credit) so that the aggregate
principal amount of outstanding
Revolving Loans and
non-cash-collateralized Letters
of Credit does not exceed the
revolving commitments as so
reduced.
<TABLE>
<CAPTION>
Commitment
Transaction Year Reduction Percentage
---------------- --------------------
<S> <C>
4th Year 20%
5th Year 30%
6th Year 50%
</TABLE>
Mandatory Prepayments: The Borrower shall repay
outstanding Loans under each of
the Facilities (and the
commitments under the Revolving
Facility shall be permanently
reduced and, to the extent that
the aggregate amount of
outstanding Letters of Credit
exceeds the Revolving Facility
commitments as then reduced,
shall provide cash collateral
for outstanding Letters of
Credit), in each case as set
forth below, by an amount equal
to:
(i) 100% of the net cash proceeds
received from the sale or
disposition (including by way of
casualties and condemnations) of
all or any part of the assets of
Holdings or any of its
subsidiaries (other than
permitted dark fiber sales, sales
of non-core assets or sales of
inventory in the ordinary course
of business), to the extent such
net cash proceeds are not
reinvested in core assets or
permitted acquisitions within 12
months of the receipt thereof.
(ii) 50% of excess cash flow (to
be defined) for each fiscal year,
beginning with the 2001 fiscal
year; provided that no such
prepayment shall be required if
(x) the rating assigned to the
Facilities by Standard & Poors
Ratings Service ("S&P") is not
less than BBB-
5
<PAGE> 17
and the rating assigned to the
Facilities by Moody's Investors
Service Inc. ("Moody's") is not
less than Baa3 or (y) the ratio
of Total Debt to Adjusted EBITDA
is less than 3.5 to 1.0 as of the
last day of the most recently
ended fiscal quarter for which
financial statements have been
delivered (after giving pro forma
effect to the issuance of any
debt after the end of such fiscal
quarter).
(iii) 100% (or, if (x) the rating
assigned to the Facilities by
S&P is not less than BBB- and the
rating assigned to the Facilities
by Moody's is not less than Baa3
or (y) the ratio of Total Debt to
Adjusted EBITDA is less than 3.5
to 1.0 as of the last day of the
most recently ended fiscal
quarter for which financial
statements have been delivered
(after giving pro forma effect to
the issuance of any debt after
the end of such fiscal quarter),
50%) of the net cash proceeds
received from the issuance of
debt by Holdings or any of its
subsidiaries after the Closing
Date (other than debt permitted
under the limitation on
indebtedness covenant).
All mandatory prepayments shall
be made without penalty or
premium (except for LIBOR
breakage costs, if any) and shall
be applied (pro rata) to prepay
outstanding Term Loans and to
reduce Revolving Facility
commitments and repay Revolving
Loans (and then to provide cash
collateral for outstanding
Letters of Credit) in excess of
the Revolving Facility
commitments as then reduced.
Mandatory prepayments of the Term
Loans and mandatory reductions
of the Revolving Facility
commitments shall reduce
subsequent scheduled amortization
payments (or permanent reductions
of commitments, as applicable) in
inverse order of maturity.
6
<PAGE> 18
Optional Prepayments and
Commitment Reductions: Loans may be prepaid (subject to
compensation for LIBOR breakage
costs, if any) and commitments
may be reduced by the Borrower in
minimum amounts to be agreed
upon.
Optional prepayments of Term
Loans and optional reductions of
the Revolving Facility
commitments shall reduce
subsequent scheduled amortization
payments (or permanent
reductions of commitments, as
applicable) in inverse order of
maturity.
IV. CERTAIN CONDITIONS:
Initial Conditions: The availability of the
Facilities shall be conditioned
upon satisfaction of, among other
things, the following conditions
precedent (the date upon which
all such conditions precedent
shall be satisfied, the "Closing
Date"):
(a) Holdings and its subsidiaries
(including the Borrower) shall
have executed and delivered
satisfactory definitive financing
documentation with respect to the
Facilities (the "Credit
Documentation").
(b) The Parent shall have
executed and delivered the
Intercreditor Agreement (as
defined below).
(c) The Lenders shall be
satisfied in their sole
discretion with the proposed
structure of (i) the contribution
to the Borrower by The Williams
Companies, Inc. (the "Parent") of
its material subsidiaries that
hold interests in international
communications projects and by
Holdings of all of its material
subsidiaries (other than the
Borrower), in each case not
currently held, directly or
indirectly, by the Borrower (the
"Reorganization") and (h) the
capital structure of Holdings and
the Borrower, both before and
after giving effect to the
foregoing transactions.
7
<PAGE> 19
(d) The Lenders shall have
reviewed and be satisfied in
their sole discretion with the
terms of the Intercompany Note.
(e) The Lenders shall have
reviewed and be satisfied in
their sole discretion with (i)
the arrangements with respect to
the Borrower's and the Parent's
agreement to purchase, at the end
of the lease term (or, at their
option, earlier) all of the ADP
property (but only with, in the
case of the Borrower, Additional
Capital (as defined below)) and,
in the case of a purchase by the
Parent, to contribute such
property to the Borrower in
exchange for equity securities of
Holdings or Qualifying
Subordinated Debt (as defined
below) and (ii) the waivers
obtained under, the amendments
effected to, and the
off-balance-sheet accounting
treatment of, the ADP.
(f) The commitments under the
Borrower's existing senior
revolving credit facility (the
"Existing Revolver") shall have
been terminated, all amounts
outstanding thereunder shall
have been repaid in full and all
letters of credit issued
thereunder shall have been
canceled or arrangements
satisfactory to the issuer
thereof shall have been made for
the reimbursement of amounts
drawn or to be drawn thereunder.
All guarantees of amounts
outstanding under the Existing
Revolver shall have been
released.
(g) The Lenders, the
Administrative Agent and the
Arrangers shall have received all
fees required to be paid, and all
expenses for which invoices have
been presented, on or before the
Closing Date.
(h) All governmental and third
party approvals necessary or, in
the discretion of the
Administrative Agent, advisable
in connection with the
Reorganization, the financing
contemplated hereby, the
continuing operations of the
Borrower and its subsidiaries
and, if the issuance by Holdings
of its common stock to persons
8
<PAGE> 20
other than the Parent and its
subsidiaries (the "Equity
Issuance") and the offering (the
"Notes Offering") by Holdings of
its high yield senior notes due
2009 (the "High Yield Notes") are
consummated on or prior to the
Closing Date, the Equity Issuance
and the Notes Offering shall have
been obtained and be in full
force and effect.
(i) The Lenders shall have
received (i) satisfactory audited
consolidated financial statements
of Holdings for the two most
recent fiscal years ended prior
to the Closing Date as to which
such financial statements are
available and (ii) satisfactory
unaudited interim consolidated
financial statements of the
Borrower and Holdings for each
fiscal quarterly period ended
subsequent to the date of the
latest financial statements
delivered pursuant to clause (i)
of this paragraph as to which
such financial statements are
available.
(j) The Lenders shall have
received, and shall be satisfied
with, Holdings's and the
Borrower's pro forma income
statements and balance sheets,
and Holdings's and the Borrower's
projections for the fiscal years
1999 through 2007, in each of the
foregoing cases, having given
effect to the Reorganization, the
initial borrowings under the
Facilities and, if the Equity
Issuance and the Notes Offering
are consummated on or prior to
the Closing Date, the Equity
Issuance and the Notes Offering.
(k) The Lenders shall have
received such legal opinions,
documents and other instruments
(including, without limitation,
officers' solvency certificates)
as are customary for transactions
of this type or as they may
reasonably request.
(l) There shall be no materially
adverse litigation.
(m) The Lenders shall have
received and be satisfied with
all of the terms and conditions
of the indemnity
9
<PAGE> 21
to be provided by the Parent to
the Borrower in respect of
environmental matters.
(n) Immediately after giving
effect to the transactions
contemplated hereby to occur on
the Closing Date, there shall be
no debt of Holdings or any of its
restricted subsidiaries
outstanding other than (i) the
loans and letters of credit
outstanding under the Facilities,
(ii) if the closing in respect of
the Notes Offering shall have
occurred, the High Yield Notes,
(iii) the Intercompany Note, (iv)
outstandings under the ADP and
(v) other debt not to exceed
$35,000,000.
(o) Absence of any material
adverse change in the business,
condition (financial or
otherwise), operations,
properties, liabilities or
prospects of Holdings and its
subsidiaries, considered as a
whole, and the Parent and its
subsidiaries, considered as a
whole, in each case since the end
of the most recently ended fiscal
year for which audited financial
statements have been provided to
the Lenders.
(p) The Reorganization shall have
been consummated.
(q) either (x)(1) Holdings shall
have received gross proceeds from
(A) the Equity Issuance of not
less than $1,000,000,000 and (B)
the Notes Offering of not less
than $1,300,000,000, (2) the
terms and conditions of, and all
agreements, instruments and other
documents issued, entered into or
relating to the Equity Issuance
and the Notes Offering
(collectively, the "Other
Financing Documents") shall be in
form and substance satisfactory
to the Lenders and (3) the Equity
Issuance and the Notes Offering
shall have been consummated in
accordance with the Other
Financing Documents, without any
amendment, modification or waiver
unless consented to in writing by
the Lenders or (y) the Parent
shall have guaranteed all of the
obligations of the Borrower
under the Credit Documentation
pursuant
10
<PAGE> 22
to a guaranty agreement in form
and substance satisfactory to the
Lenders.
On-Going Conditions: The making of each extension of
credit (including any extension
of credit made on the Closing
Date) shall be conditioned upon
(a) the accuracy of all
representations and warranties
in the Credit Documentation
(including, without limitation,
the material adverse change and
litigation representations) and
(b) there being no default or
event of default in existence at
the time of, or after giving
effect to the making of, such
extension of credit. As used
herein and in the Credit
Documentation a "material adverse
change" shall mean any event,
development or circumstance that
has had or could reasonably be
expected to have a material
adverse effect on (a) the
business, assets, property,
condition (financial or
otherwise) or prospects of
Holdings and its subsidiaries,
taken as a whole, or (b) the
validity or enforceability of any
of the Credit Documentation or
the rights or remedies of the
Administrative Agent and the
Lenders thereunder.
V. SECURITY AND GUARANTEES
Security: If, at any time on or after the
Closing Date, the rating for the
Facilities assigned by S&P is
less than BB- or by Moody's is
less than Ba3, Holdings and all
direct and indirect restricted
subsidiaries of Holdings will
provide security interests and
liens upon substantially all
assets now or hereafter owned by
Holdings and such subsidiaries,
including, not limited to, all
capital stock of the Borrower and
any other subsidiaries of
Holdings and all accounts
receivable, inventory, patents
and trademarks, other general
intangibles and other personal
property and real property of
Holdings and such subsidiaries;
provided that (x) no foreign
subsidiary of Holdings shall be
required to pledge any assets
held by it, and not more than 66%
of the voting equity interests in
any foreign subsidiary shall be
required to be pledged, unless
the Required Lenders (as
11
<PAGE> 23
defined below) so request and (y)
no assets subject to the ADP
shall, so long as they shall be
subject thereto, be included as
collateral hereunder.
All security, if any, will be
released if (i) the Facilities
shall have terminated and all
obligations to the Lenders and
the Administrative Agent in
respect thereof shall have been
paid in full or (ii) after giving
effect to such release, the
rating for the Facilities
assigned by S&P is BB+ or greater
and by Moody's is Bal or greater.
Guarantees: The Facilities will be
guaranteed, on a joint and
several basis, by Holdings, all
of the direct and indirect
restricted subsidiaries of
Holdings and, unless the
condition set forth in clause
(q)(x) under "Initial Conditions"
above is satisfied, the Parent;
provided that no foreign
subsidiary of Holdings shall be
required to provide any such
guarantee unless the Required
Lenders so request. Such
guarantees will (i) provide for a
complete waiver by the guarantors
thereunder of any rights to
subrogation, reimbursement or
indemnification until such time
as the Facilities have been
terminated and all principal,
interest and other amounts due
thereunder have been indefeasibly
paid in full and (ii) in the case
of guarantees by subsidiaries of
Holdings, be limited to the
largest amount that would not
render the obligations subject to
avoidance under applicable
bankruptcy or fraudulent transfer
law.
VI. INTERCREDITOR AGREEMENT
The Lenders and the Parent (as
holder of the Intercompany Note)
will enter into an Intercreditor
agreement (the "Intercreditor
Agreement"), in form and
substance reasonably satisfactory
to the Required Lenders, pursuant
to which the Parent will agree
that (i) all obligations under
the Intercompany Note shall be
subordinated in all respects to
the rights of the Lenders in any
bankruptcy, insolvency,
liquidation or
12
<PAGE> 24
dissolution of the Borrower, (ii)
upon the occurrence and during
the continuance of a default or
event of default (with certain
exceptions to be agreed) under
the Facilities, (x) none of
Holdings, the Borrower or any
subsidiaries thereof may make
payments of principal, interest
or other amounts due or to become
due under, or in respect of, the
Intercompany Note and (y) the
Parent shall refrain from the
exercise of any and all remedies
that it could otherwise exercise
under the terms of the
Intercompany Note, by law or
otherwise, and (iii) it will not
transfer or assign the
Intercompany Note.
VII. CERTAIN DOCUMENTATION MATTERS
The Credit Documentation shall
contain representations,
warranties, covenants and events
of default customary for
financings of this type and other
terms deemed appropriate by the
Lenders (in each case applicable
to Holdings and its restricted
subsidiaries (including the
Borrower) and, if the Parent is a
guarantor, in a manner
substantially similar to its
existing credit facilities,
applicable to the Parent and its
restricted subsidiaries),
including, without limitation:
Representations and
Warranties: Financial statements; absence of
undisclosed material liabilities;
no material adverse change;
corporate existence; compliance
with law; corporate power and
authority; enforceability of
Credit Documentation; no conflict
with law or contractual
obligations; no material
litigation; no default; ownership
of property; liens; intellectual
property; no burdensome
restrictions; taxes; Federal
Reserve regulations; ERISA;
Investment Company Act; Public
Utility Holding Company Act;
subsidiaries; environmental
matters; labor matters; year 2000
compliance; and accuracy of
disclosure.
13
<PAGE> 25
Affirmative Covenants: Delivery of financial statements,
reports, accountants' letters,
projections, officers'
certificates and other
information requested by the
Lenders; payment of other
obligations, continuation of
business and maintenance of
existence and material rights and
privileges; compliance with laws
and material contractual
obligations; maintenance of
property and insurance;
maintenance of books and records;
right of the Lenders to inspect
property and books and records;
notices of defaults, litigation
and other material events;
further assurances regarding
collateral, if any; and
compliance with environmental
laws.
Financial Covenants: Financial maintenance covenants
to be calculated on the basis of
Holdings and its restricted
subsidiaries, on a consolidated
basis, with certain definitions
set forth in summary form under
"Definitions" below and others to
be determined (and certain income
statement components thereof to
be annualized for the periods
ending prior to a date to be
determined). Financial covenants
will include, without limitation
(and applicable for the periods
referred to below):
(i) Total Debt/Contributed
Capital (applies Closing Date
through a date to be determined)
(ii) Minimum EBITDA plus dark
fiber sales cash revenues (with
limitations on the amount of dark
fiber sales revenues to be
included for particular periods
to be agreed) (applies Closing
Date through a date to be
determined)
(iii) Limitation on Capital
Expenditures (with rollover of a
portion of unexpended amounts to
the next year permitted) (applies
Closing Date and thereafter)
(iv) Total Debt/Adjusted EBITDA
(applies from a date to be
determined and thereafter)
14
<PAGE> 26
(v) Senior Debt/Adjusted EBITDA
(applies from a date to be
determined and thereafter)
(vi) Adjusted EBITDA/Interest
Expense (applies from a date to
be determined and thereafter)
Negative Covenants: Limitations on: indebtedness
(including debt and/or preferred
stock of subsidiaries and
issuance of intercompany notes,
with exceptions to be agreed);
leases; liens (including a
prohibition on liens to secure
the Intercompany Note or the High
Yield Notes); guarantee
obligations; mergers,
consolidations, liquidations and
dissolutions; sales of assets
(with exceptions for sales of
dark fiber, provided that such
sales do not reduce the owned
network fiber count below a
minimum to be agreed); dividends
and other payments in respect of
capital stock; investments, loans
and advances (with exceptions for
investments in subsidiary
guarantors, investments in the
telecommunications industry
funded with Additional Capital
and a basket of $275,000,000);
activities of Holdings other than
the issuance of the High Yield
Notes, Qualifying Subordinated
Debt and permitted equity
securities and the ownership of
Borrower capital stock; payments
and modifications of the High
Yield Notes and other debt
instruments (including, without
limitation, the limitations on
payments of principal in respect
of the Intercompany Note referred
to below); modifications of
charter documents of Holdings and
its subsidiaries; transactions
with affiliates; sale and
leasebacks; changes in fiscal
year; negative pledge clauses;
and material changes in lines of
business.
Principal payments in respect of
the Intercompany Note shall be
prohibited prior to June 30,
2000. Thereafter, so long as no
default or event of default (with
certain exceptions to be agreed)
shall then exist:
15
<PAGE> 27
(i) principal payments in respect
of the Intercompany Note will be
permitted to be made with
Additional Capital; and
(ii) the Borrower will be
permitted to make other principal
payments in respect of the
Intercompany Note ("Other
Principal Payments") in an
aggregate amount not in excess of
$25,000,000 in any fiscal year,
provided that the aggregate
amount of such Other Principal
Payments shall not be limited so
long as if, prior to, and after
giving effect to, any such
payment, the ratio of Total Debt
to Adjusted EBITDA is less than
5.0 to 1.0.
Upon Other Principal Payment in
excess of $25,000,000 being made
in any fiscal year, the maximum
Total Debt to Adjusted EBITDA
covenant shall thereafter be
reduced (but not increased) to
5.0 to 1.0.
Events of Default: Nonpayment of principal when due;
nonpayment of interest, fees or
other amounts after a grace
period to be agreed upon;
material inaccuracy of
representations and warranties;
violation of covenants (subject,
in the case of certain
affirmative covenants, to a grace
period to be agreed upon);
cross-default; bankruptcy events;
certain ERISA events; material
judgments; ineffectiveness of
collateral documents, if any, or
guarantees; the senior unsecured
debt of the Parent shall be rated
less than BBB- by S&P or less
than Baa3 by Moody's; and a
change of control (the definition
of which is to be agreed, but
which shall include (i) failure
of Holdings to own 100% of the
outstanding capital stock of the
Borrower or failure of the Parent
to own, directly or indirectly,
more than 75% (or if (x) the
Facilities are rated at least
BBB- by S&P and Baa3 by Moody's
and (y) the condition set forth
in clause (q) (x) of "Initial
Conditions" under "Certain
Conditions" shall have been
satisfied, 35% of (1) the voting
power of all outstanding voting
stock of Holdings and (2) the
outstanding capital stock of
Holdings and (ii) any person
16
<PAGE> 28
(other than the Parent and its
subsidiaries) or group (as
defined in Sections 13(d) and
14(d) of the Securities Exchange
Act of 1934, as amended) owning
more than 35% of (1) the voting
power of all outstanding voting
stock of Holdings or (2) the
outstanding capital stock of
Holdings).
Financial Covenant Default
Cure Provisions: In the event that Holdings and
its restricted subsidiaries fail
to meet any financial maintenance
covenant in any fiscal quarter on
a consolidated basis, the Parent
shall have the right, but not the
obligation, to make a cash equity
contribution to Holdings by
purchasing equity securities of
Holdings (which Holdings shall
use to purchase equity securities
of the Borrower) in an amount
sufficient to enable Holdings and
its restricted subsidiaries to
meet such financial maintenance
covenant on a consolidated basis.
Such equity securities will not
be mandatorily redeemable or
convertible into debt, and will
provide that no dividends (other
than in the form of additional
equity securities) shall be
payable, in each case, until
after the termination of the
Facilities. Such right may not be
exercised in more than two
consecutive quarters or more than
three times in the aggregate
during the term of the
Facilities. The proceeds of any
such equity securities, to the
extent used to cure any such
financial maintenance covenant,
shall not be included in the
calculation of "Additional
Capital" except under
circumstances to be agreed.
Voting: Amendments and waivers with
respect to the Credit
Documentation shall require the
approval of Lenders holding a
majority of the commitments (or,
with respect to any Facility, if
the commitments under such
Facility have expired, the loans
outstanding under such Facility)
under the Facilities (the
"Required Lenders"), except that
(a) the consent of each Lender
directly affected thereby shall
be required with respect to (i)
reductions in the amount or
extensions of the scheduled
17
<PAGE> 29
date
of amortization or final maturity
of any Loan, (ii) reductions in
the rate of interest or any fee
or extensions of any due date
thereof, (iii) in creases in the
amount or extensions of the
expiry date of any Lender's
commitment and (iv) release of
all or substantially all of the
collateral, if any, or the
guarantors referred to above and
(b) the consent of 100% of the
Lenders shall be required with
respect to modifications to any
of the voting percentages.
Assignments
and Participations: The Lenders shall be permitted to
assign and sell participations in
their Loans and commitments,
subject, in the case of
assignments (other than to
another Lender or to an affiliate
of a Lender), to the consent of
the Administrative Agent, the
Issuers and, except during the
continuance of an event of
default, the Borrower (which
consent in each case shall not be
unreasonably withheld). Lenders
shall pay the Administrative
Agent a fee of $3,500 for each
assignment of Loans and
commitments hereunder. In the
case of partial assignments
(other than to another Lender or
to an affiliate of a Lender), the
minimum assignment amount shall
be $5,000,000 unless other wise
agreed by the Borrower and the
Administrative Agent.
Participants shall have the same
benefits as the Lenders with
respect to yield protection and
in creased cost provisions.
Voting rights of participants
shall be limited to those matters
with respect to which the
affirmative vote of the Lender
from which it purchased its
participation would be required
as described under "Voting"
above. Pledges of loans in
accordance with applicable law
shall be permitted without
restriction. Promissory notes
shall be issued under the
Facilities only upon request.
Yield Protection: The Credit Documentation shall
contain customary provisions (a)
protecting the Lenders against in
creased costs or loss of yield
resulting from changes in
reserve, tax, capital adequacy
and other requirements of
18
<PAGE> 30
law and from the imposition of or
changes in withholding or other
taxes and (b) indemnifying the
Lenders for "breakage costs"
incurred in connection with,
among other things, any
prepayment of a Euro dollar Loan
(as defined in Annex I) on a day
other than the last day of an
interest period with respect
thereto.
Expenses and
Indemnification: The Borrower shall pay (a) all
reasonable out-of-pocket
expenses of the Administrative
Agent, the Syndication Agent and
the Arrangers associated with the
syndication of the Facilities and
the preparation, execution,
delivery and administration of
the Credit Documentation and any
amendment or waiver with respect
thereto (including the reasonable
fees, disbursements and other
charges of a single counsel (plus
any local or specialized
counsel)), (b) fees pay able by
the Administrative Agent, the
Syndication Agent or to third
parties in connection with the
satisfaction of the conditions
precedent referred to above,
regardless of whether the Credit
Documentation is signed and (c)
all out-of-pocket expenses of the
Administrative Agent, the
Syndication Agent and the Lenders
(including the fees,
disbursements and other charges
of counsel) in connection with
the enforcement of the Credit
Documentation.
The Administrative Agent, the
Syndication Agent, the Arrangers
and the Lenders (and their
affiliates and their respective
officers, directors, employees,
advisors and agents) will have
no liability for, and will be
indemnified and held harmless
against, any loss, liability,
cost or expense incurred in
respect of the financing
contemplated hereby or the use or
the pro posed use of the proceeds
thereof (except to the extent
resulting from the gross
negligence or willful misconduct
of the indemnified party).
Governing Law and Forum: State of New York.
19
<PAGE> 31
Counsel to the Administrative
Agent, the Syndication
Agent and Arrangers: Davis Polk & Wardwell.
Definitions: Additional Capital = proceeds of
equity issuances by Holdings
(including the Equity Issuance) +
proceeds of offerings of debt
securities by Holdings (including
the Notes Offering) + proceeds of
Qualifying Subordinated Debt
issued after the Closing Date +
excess cash flow for fiscal years
from and after 2001 (to the
extent not required to be applied
to prepay the Facilities) -
$2,775,000,000 - any proceeds of
equity issuances used to cure
breaches of financial maintenance
covenants as provided under
"Financial Covenant Default Cure
Provisions" above, except under
circumstances to be agreed.
Adjusted EBITDA = EBITDA +
trailing four quarter dark fiber
sales cash revenues.
Contributed Capital = equity
contributed by Parent + Equity
Issuance cash proceeds + other
cash equity proceeds + Total Debt
EBITDA = net income + interest
expense (including the interest
component of rental expense under
the ADP) + income taxes +
depreciation and amortization
expense + non-cash extraordinary
or non-recurring charges - dark
fiber sales gains - amounts
attributable to affiliates that
are not consolidated restricted
subsidiaries (except to the
extent such amounts are received
in cash by the Borrower or a
consolidated restricted
subsidiary of the Borrower) -
extraordinary or non-recurring
gains.
Interest Expense = net cash
interest expense and the interest
component of rental expense under
the ADP.
Qualifying Subordinated Debt =
debt of Holdings (other than the
High Yield Notes) that matures at
least
20
<PAGE> 32
one year after the final maturity
of the Facilities, the terms and
conditions of which are
satisfactory to the Arrangers.
Senior Debt = Intercompany Note,
debt under the Facilities, any
other senior debt of the Borrower
and its restricted subsidiaries
and all outstandings under the
ADP, net of unrestricted cash and
cash equivalents in excess of
$10,000,000.
Total Debt = all debt of Holdings
and its restricted subsidiaries
and all outstandings under the
ADP, net of unrestricted cash and
cash equivalents in excess of
$10,000,000.
21
<PAGE> 33
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the
loans under each Facility
comprising each borrowing bear
interest at a rate per annum
equal to:
the ABR plus the Applicable
Margin (such loans, "ABR Loans");
or
the Adjusted LIBO Rate plus the
Applicable Margin (such loans,
"Eurodollar Loans");
provided that upon the occurrence
and during the continuance of a
default, only ABR Loans will be
available and provided further
that Swingline Loans shall only
bear interest based upon the ABR.
As used herein:
"ABR" means the higher of (i) the
rate of interest publicly
announced by the Administrative
Agent from time to time as its
prime rate in effect at its
principal office in Dallas, Texas
(the "Prime Rate") and (ii) the
federal funds effective rate from
time to time plus 0.5%.
"Adjusted LIBO Rate" means the
LIBO Rate, as adjusted for
statutory reserve requirements
for eurocurrency liabilities.
"Applicable Margin" has the
meaning set forth on Schedule I
hereto.
"LIBO Rate" means the rate at
which eurodollar deposits in the
London interbank market for one,
two, three or six months (as
selected by the Borrower) are
quoted on the Telerate screen.
Interest Payment Dates: In the case of ABR Loans,
quarterly in arrears.
<PAGE> 34
In the case of Eurodollar Loans,
on the last day of each relevant
interest period and, in the case
of any interest period longer
than three months, on each
successive date three months
after the first day of such
interest period.
Commitment Fee: The Borrower shall pay a
commitment fee to the
Administrative Agent for the
account of the Lenders ratably in
accordance with their commitments
under each of the Facilities,
from and after the Closing Date,
on the average daily amount of
the unused (other than for
Swingline Loans) commitments
under each of the Facilities.
Such commitment fees shall be
payable quarterly in arrears and,
with respect to the commitments
under any Facility, on the date
of termination of such
commitments. The rate at which
such commitment fees accrue will
be:
<TABLE>
<CAPTION>
--------------------------------------------------
USAGE OF FACILITIES COMMITMENT FEE
--------------------------------------------------
<S> <C>
Less than 33.3% 1.00%
--------------------------------------------------
Less than 66.6% but equal
to or greater than 33.3% .75%
--------------------------------------------------
Equal to or greater than 66.6% .50%
--------------------------------------------------
</TABLE>
Letter of Credit Fees: The Borrowers shall pay a
commission on the undrawn amount
of all outstanding Letters of
Credit at a per annum rate equal
to the Applicable Margin then in
effect with respect to Eurodollar
Loans that are Revolving Loans.
Such commission shall be shared
ratably among the Lenders with
commitments under the Revolving
Facility in proportion to such
commitments and shall be payable
quarterly in arrears and on the
date of termination of such
commitments.
A fronting fee, calculated at a
rate per annum to be agreed
between the Borrower and the
applicable Issuer on the face
amount of each Letter of Credit
shall be payable quarterly in
arrears to such Issuer for its
own account. In addition,
customary administrative,
issuance, amendment, payment and
negotiation
2
<PAGE> 35
charges shall be payable to the
applicable Issuer for its own
account.
Default Rate: At any time when the Borrower is
in default in the payment of any
amount of principal due under the
Facilities, such amount shall
bear interest (i) in respect of
ABR Loans, at a rate per annum
equal to the sum of 2% plus the
highest Applicable Margin for ABR
Loans plus the ABR and (ii) in
respect of Eurodollar Loans, at a
rate per annum equal to the
higher of (x) 2% plus the highest
Applicable Margin for Eurodollar
Loans plus the LIBO Rate
applicable to such Loan on the
day before payment was due and
(y) the sum of 2% plus the
highest Applicable Margin for
ABR Loans plus the ABR. Overdue
interest, fees and other amounts
shall bear interest at 2% plus
the highest Applicable Margin
for ABR Loans that are Revolving
Loans plus the ABR.
Rate and Fee Basis: All per annum rates shall be
calculated on the basis of a year
of 360 days (or 365/366 days, in
the case of ABR Loans the
interest rate payable on which is
then based on the Prime Rate) for
actual days elapsed.
3
<PAGE> 36
Schedule I
"Applicable Margin" means, for any day, (i) the applicable rate per
annum set forth below under the caption "Eurodollar Spread" or "ABR Spread," as
the case may be, based upon the ratings by S&P and Moody's, respectively,
applicable on such date to the Facilities plus (ii) the applicable rate per
annum set forth below under the caption "Leverage Premium," unless the ratio of
Total Debt to Adjusted EBITDA, as determined by reference to the financial
statements delivered to the Administrative Agent in respect of the most recently
ended fiscal quarter of the Borrower is less than 6:00 to 1:00:
<TABLE>
<CAPTION>
===================================================================================================================
INDEX DEBT RATING EURODOLLAR SPREAD ABR SPREAD LEVERAGE PREMIUM
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEVEL I BBB- and Baa3 or higher 1.00% 0.00% 0.25%
- -------------------------------------------------------------------------------------------------------------------
LEVEL II BB+ and Ba1 1.375% 0.375% 0.25%
- -------------------------------------------------------------------------------------------------------------------
LEVEL III BB and Ba2 1.75% 0.75% 0.25%
- -------------------------------------------------------------------------------------------------------------------
LEVEL IV BB- and Ba3 2.00% 1.00% 0.25%
- -------------------------------------------------------------------------------------------------------------------
LEVEL V Lower than BB- or lower than Ba3 2.25% 1.25% 0.25%
===================================================================================================================
</TABLE>
For purposes of the foregoing, (i) if neither S&P nor Moody's shall
have in effect a rating for the Facilities (other than by reason of the
circumstances referred to in the last sentence of this definition), then the
Applicable Margin shall be the rate set forth in Level V, (ii) if either S&P or
Moody's, but not both S&P and Moody's, shall have in effect a rating for the
Facilities, then the Applicable Margin shall be based on such rating, (iii) if
the ratings established by S&P and Moody's for the Facilities shall fall within
different Levels, then the Applicable Margin shall be based on the lower of the
two ratings, (iv) if the ratings established by S&P and Moody's for the
Facilities shall fall within the same Level, then the Applicable Margin shall be
based on that Level and (v) if the ratings established by S&P and Moody's for
the Facilities shall be changed (other than as a result of a change in the
rating system of S&P or Moody's), such change shall be effective as of the date
on which it is first announced by the applicable rating agency. Each change in
the Applicable Margin shall apply (other than with respect to the Leverage
Premium or as described in the immediately succeeding sentence) during the
period commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change. If the rating
system of S&P or Moody's shall change, or if either such rating agency shall
cease to be in the business of rating corporate debt obligations, the Borrower
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable
4
<PAGE> 37
Margin shall be determined by reference to the rating most recently in effect
prior to such change or cessation.
5
<PAGE> 1
EXHIBIT 12.1
WILLIAMS COMMUNICATIONS GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, (UNAUDITED) YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss)
before income
taxes........... $(56,693) $(27,264) $(186,026) $(33,805) $(3,146) $ 6,763 $(9,829)
Add:
Interest
expenses-
net.......... 6,401 -- 7,468 933 17,367 13,999 7,405
Rental expense
representative
of interest
factor....... 16,900 7,382 44,590 28,120 18,786 1,784 1,230
Minority
interest
income of
consolidated
subsidiaries... (5,836) 1,460 (15,645) 13,506 -- -- --
Equity losses... 10,159 1,479 7,908 2,383 1,601 93 --
-------- -------- --------- -------- ------- ------- -------
Total
earnings
(loss)
as
adjusted
plus
fixed
charges... $(29,069) $(16,943) $(141,705) $ 11,137 $34,608 $22,639 $(1,194)
======== ======== ========= ======== ======= ======= =======
Combined fixed
charges:
Interest expense-
net............. 6,401 -- $ 7,468 $ 933 $17,367 $13,999 $ 7,405
Capitalized
interest........ 4,135 1,739 11,182 7,781 -- -- --
Rental expense
representative
of interest
factor.......... 16,900 7,382 44,590 28,120 18,786 1,784 1,230
-------- -------- --------- -------- ------- ------- -------
Total
fixed
charges... $ 27,436 $ 9,121 $ 63,240 $ 36,834 $36,153 $15,783 $ 8,635
======== ======== ========= ======== ======= ======= =======
Ratio of earnings to
fixed charges...... (a) (a) (a) (a) (a) 1.43 (a)
======== ======== ========= ======== ======= ======= =======
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $56,505,000,
$26,064,000, $204,945,000, $25,697,000, $1,545,000 and $9,829,000 for the
three months ended March 31, 1999 and 1998 (unaudited) and the years ended
1998, 1997, 1996 and 1994, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial and Operating Data" and to the use of our
report on the financial statements dated April 7, 1999, except for the matters
described in the third paragraph of Note 10 and Note 17, as to which the date is
July 7, 1999 and our report on the financial statement schedule dated July 7,
1999, in Amendment No. 3 to the Registration Statement on Form S-1 and related
prospectus of Williams Communications Group, Inc. for the registration of its
common stock.
ERNST & YOUNG LLP
Tulsa, Oklahoma
July 7, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of ATL -- ALGAR TELECOM LESTE S.A. as of
December 31, 1998 and for the period from inception (March 26, 1998) through
December 31, 1998 (and to all references to our Firm) included in or made a part
of the amendment to the registration statement on Form S-1 of Williams
Communications Group, Inc.
/s/ ARTHUR ANDERSEN S/C
----------------------------------------
ARTHUR ANDERSEN S/C
Belo Horizonte, Brazil
June 30, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 26, 1999, in Amendment No. 3 to the
Registration Statement Form S-1, Registration Statement No. 333-76007 and
related Prospectus of Williams Communications Group, Inc. for the registration
of its common stock.
/s/ DELOITTE & TOUCHE LLP
----------------------------------------
DELOITTE & TOUCHE LLP
Toronto, Ontario
July 5, 1999
<PAGE> 1
EXHIBIT 23.5
June 23, 1999
Williams Communications Group, Inc.
One Williams Center
Tulsa, Oklahoma 74172
The undersigned hereby consents to serve as a director of Williams
Communications Group, Inc., a Delaware corporation, and to all references to him
and to his professional history in the Registration Statements on Form S-1 of
Williams Communications Group, Inc., and any other required filings with the
Securities and Exchange Commission. The undersigned further consents to the
filing of this consent as an exhibit to any such filing.
/s/ H. BRIAN THOMPSON
------------------------------------
Name: H. Brian Thompson
<PAGE> 1
EXHIBIT 23.6
May 27, 1999
Williams Communications Group, Inc.
One Williams Center
Tulsa, Oklahoma 74172
The undersigned hereby consents to serve as a director of Williams
Communications Group, Inc., a Delaware corporation, and to all references to him
and to his professional history in the Registration Statement on Form S-1 of
Williams Communications Group, Inc., and any other required filings with the
Securities and Exchange Commission. The undersigned further consents to the
filing of this consent as an exhibit to any such filing.
/s/ ROY A. WILKENS
------------------------------------
Name: Roy A. Wilkens
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 96,847
<SECURITIES> 0
<RECEIVABLES> 546,226
<ALLOWANCES> 33,241
<INVENTORY> 73,609
<CURRENT-ASSETS> 959,499
<PP&E> 991,752
<DEPRECIATION> 210,428
<TOTAL-ASSETS> 2,872,921
<CURRENT-LIABILITIES> 458,052
<BONDS> 1,143,434
0
0
<COMMON> 1
<OTHER-SE> 1,034,073
<TOTAL-LIABILITY-AND-EQUITY> 2,872,921
<SALES> 0
<TOTAL-REVENUES> 502,161
<CGS> 0
<TOTAL-COSTS> 540,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,437
<INTEREST-EXPENSE> 10,536
<INCOME-PRETAX> (56,693)
<INCOME-TAX> 17,448
<INCOME-CONTINUING> (74,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,141)
<EPS-BASIC> (74,141.00)
<EPS-DILUTED> (74,141.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 387,772
<CGS> 0
<TOTAL-COSTS> 410,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,483
<INTEREST-EXPENSE> 1,739
<INCOME-PRETAX> (27,264)
<INCOME-TAX> (766)
<INCOME-CONTINUING> (26,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,498)
<EPS-BASIC> (26,498.00)
<EPS-DILUTED> (26,498.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,004
<SECURITIES> 0
<RECEIVABLES> 515,447
<ALLOWANCES> 23,576
<INVENTORY> 67,699
<CURRENT-ASSETS> 887,579
<PP&E> 875,694
<DEPRECIATION> 179,969
<TOTAL-ASSETS> 2,337,546
<CURRENT-LIABILITIES> 557,046
<BONDS> 623,730
0
0
<COMMON> 1
<OTHER-SE> 1,006,681
<TOTAL-LIABILITY-AND-EQUITY> 2,337,546
<SALES> 0
<TOTAL-REVENUES> 1,733,469
<CGS> 0
<TOTAL-COSTS> 1,900,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,591
<INTEREST-EXPENSE> 18,650
<INCOME-PRETAX> (190,088)
<INCOME-TAX> (5,097)
<INCOME-CONTINUING> (184,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184,991)
<EPS-BASIC> (184,991.00)
<EPS-DILUTED> (184,991.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,290
<SECURITIES> 0
<RECEIVABLES> 303,887
<ALLOWANCES> 12,787
<INVENTORY> 63,484
<CURRENT-ASSETS> 560,179
<PP&E> 534,055
<DEPRECIATION> 126,403
<TOTAL-ASSETS> 1,506,034
<CURRENT-LIABILITIES> 409,214
<BONDS> 125,746
0
0
<COMMON> 1
<OTHER-SE> 862,701
<TOTAL-LIABILITY-AND-EQUITY> 1,506,034
<SALES> 0
<TOTAL-REVENUES> 1,428,513
<CGS> 0
<TOTAL-COSTS> 1,483,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,837
<INTEREST-EXPENSE> 8,714
<INCOME-PRETAX> (33,805)
<INCOME-TAX> 2,038
<INCOME-CONTINUING> (35,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,843)
<EPS-BASIC> (35,843.00)
<EPS-DILUTED> (35,843.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 705,187
<CGS> 0
<TOTAL-COSTS> 702,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,694
<INTEREST-EXPENSE> 17,367
<INCOME-PRETAX> (3,146)
<INCOME-TAX> 368
<INCOME-CONTINUING> (3,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,514)
<EPS-BASIC> (3,514.00)
<EPS-DILUTED> (3,514.00)
</TABLE>
